Why is the Lynas share price powering ahead today?

Shares in the rare earths company are off to a great start this week.

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Key points

  • Lynas shares accelerate 5.26% to $9.30
  • The price of Neodymium-Praseodymium (NdPr) has surged 5% in the past week which is supporting the Lynas share price
  • The company is seeking to reduce its reliance on China by building a heavy rare earths processing facility in the United States

The Lynas Rare Earths Ltd (ASX: LYC) share price is charging higher today despite no new announcements from the company.

At the time of writing, the rare earths producer’s shares are up 5.26% to $9.30 apiece.

For context, the S&P/ASX 200 Materials (ASX: XMJ) sector is one of the better performers on the ASX today. The index, which contains 39 companies that involve mining, forest products, and construction materials, is up 0.81% to 16,731.2 points.

Lynas shares recover lost ground

After hitting a year to date low of $7.895 last week, it appears the Lynas share price has bottomed out.

This comes after the company’s market is staging a small recovery despite macro environmental headwinds still in the mix.

Notably, the increase in Neodymium-Praseodymium (NdPr) prices are likely to be supporting investor confidence in the company’s shares.

In the past week, the price of NdPr has been trending upwards to post a gain of almost 5%.

Lynas is considered the world’s second largest producer of NdPr, behind China which accounts for 60% of global production of rare earths.

Rare earths cover a group of 17 metals that are critical to the manufacturing of many electronic products. This includes mobile smartphones, electric vehicles, aircraft engines, wind turbines, as well as military equipment.

While Lynas currently processes both light and heavy rare earths in Malaysia, it requires China for a final separation of heavy rare earths.

Once completed, the finished products are rare earth oxides, the form in which rare earths are delivered to customers.

However, in the past, China has weaponised its supply to the market, triggering Western analysts to consider a strategy re-think.

As such, Lynas is looking at establishing a heavy rare earths processing facility in the United States. This comes on the back of a global push to reduce reliance on China for critical metals.

Heavy rare earths are used in cutting-edge weapons and communications systems, as well as the F-35 fighter jet.

Lynas share price snapshot

Over the past 12 months, the Lynas share price has rocketed by close to 70% following positive investor sentiment.

Lynas has a price-to-earnings (P/E) ratio of 30.38 and commands a market capitalisation of roughly $8.3 billion.

Motley Fool contributor Aaron Teboneras 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 Scott Phillips.

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