Why is the Lynas (ASX:LYC) share price so volatile?

Shares in the rare earths miner are trading within an extremely wide range lately.

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The Lynas Rare Earths Ltd (ASX: LYC) share price has been on a rollercoaster ride recently.

Shares in the rare earths miner are trading within an extremely wide range of late.

Let's take a closer look at why the Lynas share price is so volatile.  

What's been happening with the Lynas share price?

Shares in Lynas have been all over the place in September. Since the start of the month, the company's share price has soared by as much as 17% to hit a high of $8.05 on 16 September.

Today, shares in Lynas are trading at $6.65, which is 3.4% lower for the month. Given the company did not release any price-sensitive news during September, this price action reflects just how volatile the Lynas share price is.

Why is the price so volatile?

Lynas is a producer of rare earths metals, which are an essential component of the functioning of our modern-day lives.

As a result, Lynas is essentially a resources company that relies on the production and sale of commodities.

Since commodities are dictated by their own spot prices, Lynas is therefore considered a 'price taker'. That means its share price is at the mercy of the ebb and flow of the individual spot prices of rare earths metals.

Recently, weakness in the Lynas share price has been driven by weakness in commodity prices.

Commodites have felt the pain following concerns over the Chinese economy. The neodymium price, in particular, has been a poor performer putting pressure on the Lynas share price.

More on the Lynas share price

Although shares in Lynas have suffered this month, they are 59% higher year to date.

Bullish sentiment towards the rare earths miner was reflected in the company's full-year results in late August. Lynas revealed a record result, highlighted by a 60% increase in revenue to $489 million.

Other highlights of the company's full-year report include:

  • Net profit after tax (NPAT) of $157.1 million compared to a loss of $19.4 million the previous year
  • Earnings before interest, taxes, depreciation, and amortisation (EBITDA) of $235.3 million, up from $59.7 million in FY20
  • Cash and cash equivalents as at 30 June of $680.8 million compared to $101.7 million in the prior year

Over the past five years, Lynas shares have risen by 1,130%.

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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