The Lynas Rare Earths Ltd (ASX: LYC) share price continues to slide after what initially looked like a good quarterly result on Tuesday.
The Lynas share price has fallen almost 14% this week, today reaching a 2-month low of $5.41 at the time of writing, down 7.6%.
Didn't the quarterly result read well?
Lynas' quarterly results read well at face value.
Its rare earth oxide and NdPr (Neodymium and Praseodymium) had largely improved to 4,463 tonnes and 1,359 tonnes compared to the respective 3,410 tonnes and 1,367 tonnes produced in the second quarter of FY21 (2Q21).
Rare earth prices also continued to march higher in the quarter to A$35.5/kg compared to A$29.5/kg last quarter and A$19.8/kg a year ago.
The company observed that the "rare earths market appears to be recovering well, with both magnet and catalyst sectors experiencing robust demand during the quarter".
As part of Lynas' 2025 growth plan, its new Kalgoorlie rare earth progressing facility project continues to push forward with the approval for the start of limited preliminary construction. The company was pleased to hear Prime Minister Scott Morrison publicly state that this project is a "…gold standard example of the cooperation on critical supply chains between Australia and the US."
Higher production, higher prices, a recovering industry and government recognition. So what exactly is going wrong?
What's driving the Lynas share price lower?
Upon closer inspection, the update shed light on subdued sales due to the impact of the COVID-19 pandemic on trade, and recent shipment delays due to the Suez Canal blockage.
The company also observed that several Chinese rare earth producers are planning to increase production. Among them, the leading global rare earths supplier Northern Rare Earth, which plans to double production within 3 years.
Northern Rare Earth accounts for some 60% of China's total rare earth production. The doubling of its output could very well weigh on prices in the medium to long term.
The market appears to have swept aside the company's quarterly achievements and focused more on looming supply woes. Despite today's fall, the Lynas share price is still up 29% year-to-date.
