March proved to be a volatile month for the Lynas Rare Earths Ltd (ASX: LYC) share price.
Its shares surged as much as 20% in the first week to an all-time record high of $6.82. This was followed by a sharp sell-off between 23 and 25 March where its shares shed ~15% to a 1-month low of $5.56.
In the final stretch of March, the Lynas share price staged a 10% recovery to finish the month relatively flat.
What’s next for the Lynas share price?
Higher neodymium prices to lift earnings
Neodymium (NdPr) is the primary material produced by Lynas, typically used in the production of magnets for automotive and energy industries.
A global commitment for reducing emissions has put the critical material in the spotlight, propping both NdPr prices and the Lynas share price to 9-year highs.
In Lynas’ half-year results, the company acknowledges that it is still premature to make a full assessment of global demand for rare earths, but preliminary data is positive nonetheless. It pointed to accelerating electric car penetration in Europe and Asia (primarily China) which more than compensates for the overall year-on-year decrease in global car sales.
Preliminary estimates highlight 40% growth in global sales of electric vehicles in 2020 compared to 2019, reaching a market share of approximately 4%. Other notable sectors include wind energy capacity which grew by 8% despite COVID-19 disruptions.
Solid demand has seen the average Chinese domestic price of NdPr increase to US$55.5/kg in December 2020, compared to the US$35.9/kg in December 2019. This translated to a net profit of $40.6 million in 1H21 compared to the $3.9 million in 1H20.
Lynas 2025 growth plan
The ‘Lynas 2025’ growth plan is focused on building a larger business to meet forecast demand growth.
Lynas announced a $425 million capital raising back in August 2020 to fund its Kalgoorlie rare earths processing facility to produce mixed rare earth carbonate for shipment to the Lynas Malaysia plant.
In January 2021, the company signed an agreement with the United States government to build a commercial Light Rare Earths separation plant in the US, with the US government to provide up to approximately US$30 million.
Once operational, the plant is expected to produce approximately 5,000 tonnes per annum of rare earths products, including approximately 1,250 tonnes per annum of NdPr. The plant will be designed to receive material directly from the new Kalgoorlie plant in Western Australia.