The past year has been a rewarding one for Lynas Rare Earths Ltd (ASX: LYC) shareholders. With a return of 130% since this time last year, the rare-earths mining company has been one of the highest returning investments in the S&P/ASX 200 Index (ASX: XJO) of the last year.
While the times have been good in recent history, the company's managing director, Amanda Lacaze, is optimistic of an even brighter future. This sentiment was shared during Lynas's annual general meeting (AGM) last week.
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Electrification trend sparks rare-earth boom
The underlying strength behind the Lynas share price has been the rising price of rare-earth commodities. This includes neodymium-praseodymium (NdPr), a high purity magnetic alloy that is used in a growing number of technology applications. A significant contributor to the growth in demand for NdPr is the accelerating demand for electric vehicles.
In last week's AGM, the company revised its forecast for NdPr demand growth. Previously, ASX-listed Lynas had pencilled out an annual growth rate of 7.5%. However, with global electric vehicle sales rising by 140% in the first quarter of 2021, the company now expects an annual growth rate of 10%. For context, NdPr is used in the permanent magnets used in electric motors.
The projected base scenario for electric vehicle (EV) share of the light-vehicle market in 2030 is 37% for China. Similarly, Europe and the United States are expected to reach a 33% and 17% EV share respectively. A much larger amount of rare-earths will likely be needed to cater to the significant number of EVs forecast to be on the road by 2030.
Already, there are concerns of rare earths evolving into the next microchip crisis. Much like other elements used in EVs, such as lithium, a supply-demand imbalance is expected for the magnetic material.
For this reason, Lynas's management team is expecting a continuation in favourable market conditions.
ASX-listed Lynas benefits from supply diversification
In addition to the strong demand for rare earths, Lynas is benefitting from countries diversifying their source. Historically, China has been the dominant force in rare-earth production, producing an estimated 91% of all rare earth metals.
This heavy reliance on China's supply has fed into a push for local rare-earths supply in other regions. As such, ASX-listed Lynas has found itself in prime focus of investors, being one of few large-scale rare-earth producers outside of China.
