Lynas Rare Earths Ltd (ASX: LYC) shares are avoiding the market selloff on Friday.
In afternoon trade, the rare earths producer's shares are up slightly to $14.28.
Image source: Getty Images
Why are Lynas Rare Earths shares outperforming?
The catalyst for today's outperformance has been the release of a broker note out of Macquarie Group Ltd (ASX: MQG) this morning.
That note reveals that the broker has turned bullish on the miner following a significant pullback in its share price in recent weeks.
Macquarie notes that sentiment is fading but that fundamentals remain unchanged. It said:
Following the late October meeting between China and the US, a tactical agreement was reached, lowering tariffs on Chinese imports. In return, China delayed additional rare earth export controls by a year. While this postponement eases immediate supply concerns, rare earths remain a key geopolitical lever. We expect governments to continue prioritising defence and critical mineral security.
Importantly, despite the agreement between China and the US, Macquarie is expecting the neodymium-praseodymium (NdPr) market to remain very tight. It adds:
As outlined in our prior note, we anticipate a small deficit in NdPr market balance in CY25 with 108kt of supply and 110kt of demand, reflecting solid demand with disrupted supply. Deficits of ~6kt and ~0.5kt are likely in CY26E and CY27E. A return to balance may occur in CY28–CY30E with greenfield projects and recycling.
Macquarie also highlights that while there has been a lot of funding going into the industry, ramp ups are challenging and new supply isn't going to come quickly. It adds:
In early Nov, Brazilian producer Serra Verde secured US$465m in US funding to upgrade its Pela Ema mine. MP Materials (Not Rated) reported record NdPr oxide output of 721t in 3QCY25, up 21% sequentially. However, rapid ramp-ups are challenging. The company expects 4QCY2025 concentrate production to remain roughly flat versus 4QCY2024, with NdPr oxide output flat to slightly higher sequentially. We believe the drive for supply independence will persist. LYC still has pants on when the tide goes out and is swimming between the flags.
Broker upgrade
According to the note, Macquarie has upgraded Lynas Rare Earths shares to an outperform rating with an unchanged price target of $17.00.
Based on its current share price, this implies potential upside of 19% for investors over the next 12 months.
Commenting on its upgrade, Macquarie said:
Upgrade from Neutral to Outperform: We expect the NdPr market to remain tight fundamentally, driven by solid demand and supply disruptions. LYC remains the largest ex-China REE producer. Upgrade to Outperform given recent share price weakness which is attributable to the waning market sentiment.
