Down 13% in FY24, is this the year for Lynas shares?

Experts are still constructive on the company's year ahead.

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Lynas Rare Earths Ltd (ASX: LYC) shares had a rough ride in FY24, dropping 13%.

Stock in the rare earth explorer started the year trading at $6.85 and finished 12 months later at $5.93 apiece.

Investors are no doubt wondering if FY25 will mark a turnaround for this critical minerals producer. Here's a recap of last financial year and what's in store for Lynas shares.

Lynas shares down in FY24

Weaker demand for electric vehicles (EVs) and falling rare earth prices appear to be the primary drivers behind the fall in Lynas shares over FY24.

Lynas, one of just two non-Chinese producers of rare earth elements in the world, is heavily influenced by these market dynamics.

China has global dominance in the rare earths market, with a 70% share in mining and 90% processing capacity. According to my colleague Kate, sluggish EV demand has put pressure on rare earths prices and impacted Lynas' revenues.

In FY24, the prices for key rare earth elements like neodymium and praseodymium (NdPr) oxide fell by more than 50%.

Neodymium hasn't recovered, still hovering at CNY457,500 per tonne at the time of writing. Meanwhile, praseodymium is fetching US$95.80 per kilogram, down from highs of $217 per kilogram in January 2022.

Due to the challenging market conditions, Lynas reported a decrease in sales by 36.5% to $234.8 million in its first-half results.

As a result, the company's net profit after tax (NPAT) of $39.5 million was down 73.6% year over year.

What's the outlook for Lynas shares?

Lynas doesn't appear to be resting on its laurels. In its half-year results, the company also announced plans to target the first production of two separated heavy rare earths (HRE) products in 2025.

This includes separated dysprosium (Dy) and terbium (Tb) at its Malaysian facility.

Both are crucial for high-performance magnets used in EVs and other high-tech applications.

Lynas CEO Amanda Lacaze expressed optimism about this development, saying, "This circuit reconfiguration at Lynas Malaysia provides a pathway to accelerate our commitment to processing all of the elements in the Mt Weld ore body."

Additionally, Lynas is progressing with pre-construction activities for its planned US Rare Earths Processing Facility, designed to accept third-party feedstocks. This facility is part of the company's strategy to enhance its production capabilities.

What are brokers saying?

Several top brokers see potential in Lynas shares.

Ord Minnett describes Lynas as "the safe way to play the sector", according to my colleague James. Ord also highlights Lynas' status as the only significant producer of rare earths outside China.

The broker notes that rare earths prices are currently at depressed levels, potentially making it a ripe time to buy into the sector. It set a buy rating with an $8.00 price target on Lynas shares, implying a potential upside of 28% from current levels.

Similarly, Bell Potter has a buy rating and a $7.80 price target, while Goldman Sachs also maintains a buy rating with a $7.50 price target.

Foolish takeout

While Lynas shares have faced significant headwinds in FY24, the company's strategic initiatives and the potential recovery of rare earth prices could change the case. Time will tell.

As always, remember to conduct thorough due diligence and stay updated on market developments.

Motley Fool contributor Zach Bristow 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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