The Lynas Rare Earths Ltd (ASX: LYC) share price sank 23% in 2022, a significant underperformance compared to the S&P/ASX 200 Index (ASX: XJO), which dropped by 7%.
Lynas claims to be the world's second-largest producer of separated rare earth materials, as well as having the world's largest single rare earths processing plant in Malaysia.
The company's production includes neodymium and praseodymium (NdPr) used in magnets, and lanthanum, cerium and mixed heavy rare earths.
Lynas reveals that its rare earth materials are used in many high-tech and future-facing applications, including electronics, wind turbines and hybrid and electric vehicles.
What happened in 2022?
A number of different things can affect the Lynas share price.
Resource business success can be heavily impacted in the short term by the selling price of its resources.
In the third quarter of FY22, which covers the three months to 31 March 2022, the average selling price of the company's rare earths was A$64.7 per kilo. In the fourth quarter of FY23, the three months to 30 June 2022, the average selling price was A$79.2 per kilo.
However, the company reported the average selling price had sunk to A$49.3 per kilo in the first quarter of FY23, which covers the three months to 30 September 2022.
While that's still a solid price, investors may be worried about a further decline in the rare earths price. In addition, it comes amid the rapidly rising interest rates, which could hurt the global economy and global demand.
Lynas advised that the FY23 first quarter also saw "significant operational challenges, including a complete outage of water supply in Malaysia." It lost 16 days of production after an equipment failure by the local water supplier.
Will 2023 be better for the Lynas share price?
Lynas is working on a number of growth projects to increase the scale of the business.
It is accelerating production capacity at Mt Weld, completing the rare earths processing facility in Kalgoorlie, enhancing its operations in Malaysia, and planning a US-based rare earth processing facility in Texas.
Progress on each of those projects could boost investor sentiment about the company.
Lynas said the downward pricing trend had been "triggered by concerns that the 25% production quota increase in China would lead to oversupply". However, prices started to recover and stabilise in mid-September "once these concerns were found to be excessive".
The company told investors at the end of October that "future pricing trends will depend mainly on the economic recovery in China, which has seen weak demand in the recent past."
With the Chinese economy now open after COVID lockdowns, could this mean there's something of a rebound in demand for rare earths from China?
Bear in mind that interest rates remain high, however, and there is uncertainty about how the global economy will go from here.
The Lynas share price has rebounded more than 10% since 3 January 2023.
According to Commsec data, there are currently four analysts that rate Lynas as a buy, four hold ratings and two sell ratings.
