The share price of Lynas Corporation Limited [ASX:LYC] finished down 2.88%, trading at $2.70.
Despite a loss today, the current share price still represents an approximate 80% increase from its 52-week low on 4 January:
After a brief retracement following the escalation of trade war tensions, the Lynas share price has begun to rise again. We look at two recent developments in the world of rare earth mining and give our take on the outlook for Lynas.
Lynas share price edging upwards — a look at recent industry news
Prior to today, the Lynas share price has closed down only once in the previous 11 sessions, perhaps indicating that investors believe the regulatory cloud hanging over it in Malaysia is starting to clear/has already cleared.
As the largest rare earths producer outside of China, the company plans to double its output of neodymium (Nd) and praseodymium (Pr) by 2025.
But what has China been doing recently?
According to customs data seen by mining.com, China’s rare earth exports have actually increased 9% in June compared to May — up to 3,996 tonnes.
However, in the first half of 2019, total exports are still down 11.3% year-on-year.
So there may be a bit of unease in the rare earth market at the moment — perhaps China never really intended to cut off supply in the first place.
It was merely a bargaining chip on the complex poker table that is the current trade war.
Then again, the US appears to be taking steps to ward off any potential risk.
For instance, Reuters reports that they have seen a document indicating that the Pentagon is moving quickly to assess the potential strategic importance of the resources:
‘The Pentagon wants miners to describe plans to develop U.S. rare earths mines and processing facilities, and asked manufacturers to detail their needs for the minerals, according to the document.’
Responses to the document are required before the end of this month.
Republican Senator Marco Rubio has also introduced a bill that would allow rare earth producers to avoid antitrust laws and form cooperatives.
What does this all mean for Lynas?
I believe it means that the trade war/rare earth narrative could explode again.
China has ramped up production, but the Pentagon is rushing to assess risks.
Which could mean a few things.
- China has been cajoled into upping production
- China realises it may lose market share to foreign miners, thereby weakening its hand
- The US took the threat seriously, China knows they have a strong hand, and may cut exports again
Or some combination of these things.
It is impossible to know the full details of what happens behind closed doors when the US and China trade representatives meet.
Of the three options presented above, it appears as if all point to the rare earth issue resurfacing again.
Lynas benefitted last time it became a hot topic, and could benefit again.
So I think the outlook for Lynas looks pretty solid.
I look at what makes Lynas tick in this free report. The report also provides an in-depth look at demand dynamics and the future of the strategic resources.
For Money Morning