The S&P/ASX 200 Index (ASX: XJO) has slipped into the red in early trade on Wednesday, dropping 1.38% to 7,172.5 points.
Shares in rare earths' producer Australian Strategic Materials (Hldngs) Ltd (ASX: ASM) are following the Index down, trading in the red this week and dropping another 1.12% this morning to $9.73.
In fact, the Australian Strategic Materials share price has dipped from a high of $13.66 on 26 August and is down 16% this month alone.
Here's what appears to be behind these moves.
Why are Australian Strategic Materials' shares trending down lately?
Even though Australian Strategic Materials' share ticker was added to the S&P/ASX 300 Index (ASX: XKO) on 3 September, it hasn't been enough to spur a lift in the company's share price to date.
The company also released its FY21 statutory accounts last week where it outlined progress for the year, including several investment partnerships.
Investors didn't appear too impressed given the company's share price has failed to head back towards its previous highs.
Instead, investors have continued to sell ASM shares in droves. This has coincided with a cooling off in the price of Neodymium, a rare earth that the company has exposure to.
After a strong gain this year in the commodities markets, the price of Neodymium has climbed 26% this year to date.
However, this growth level has wound back in the last month or so and the rare earth has only edged higher by roughly 1.5% since August.
Zooming out, it appears there is weakness across the broader rare earths sector as well.
To assess the growth of shares in an industry, indexes and exchange traded funds (ETFs) serve as good proxies to do so.
The MVIS Global Rare Earth/Strategic Metals Index, which tracks the performance of the most important players in the global rare earths industry, is tracking down over the last month.
It has decreased in value by almost 5% since the start of September.
Also, the VanEck Rare Earth/Strategic Metals ETF (NYSEARCA: REMX) – another good proxy – has fallen 10% into the red this past month.
Hence, it appears that Australian Strategic Materials' shares are falling in line with the broad sector, propelled by volatility in the underlying rare earths markets.
Australian Strategic Materials share price snapshot
On a longer term basis, the Australian Strategic Minerals share price has posted outsized returns this year to date.
It's climbed 54% since January 1, extending its gain over the past 12 months to 363%.
These results are well ahead of the broad Index's return of around 25% over the last year.
