Lynas Shares Extend Decline Amid Operational and Geopolitical Headwinds

The stock of Australian rare earths producer Lynas continues to face significant pressure, having shed more than 40% of its value since reaching a peak last October. Once hailed as a strategic Western contender to counter China's market dominance, the company is now contending with production setbacks and a shifting geopolitical landscape. Shares are currently trading at €7.19, a stark contrast to the €13.15 level touched in October.

A substantial portion of Lynas's impressive rally earlier this year, which saw gains of approximately 130%, was fueled by geopolitical friction. With China controlling an estimated 70% of global rare earths mining and 87% of processing capacity, Western governments, led by the United States, actively sought diversified supply chains.

However, the immediate sense of urgency has moderated. A recently concluded trade agreement between the U.S. and China has temporarily alleviated concerns over potential export restrictions. Consequently, the geopolitical risk premium previously baked into Lynas's valuation is eroding.

The company's long-term strategic importance remains intact. The U.S. defense sector relies on its samarium for precision-guided munitions, and Japan has firmly integrated Lynas into its supply chain. Nonetheless, the short-term catalyst for a share price recovery appears absent.

Power Disruptions Hinder Output

Recent share price weakness has been directly triggered by operational issues. Power outages at Lynas's processing facility in Kalgoorlie have caused a one-month production shortfall in mixed rare earth carbonate (MREC), a key feedstock for its downstream operations in Malaysia.

Should investors sell immediately? Or is it worth buying Lynas?

This challenge highlights a broader, structural problem. Western Australia's power grid depends on a single transmission line, aging infrastructure, and faces the harsh conditions of the Outback. Management is collaborating with the state government and utility provider Western Power on solutions and is evaluating off-grid power alternatives.

In response to these disruptions, analysts at Canaccord Genuity swiftly revised their forecasts. Their production estimate for neodymium-praseodymium (NdPr) in the December quarter was cut from 2.7 to 1.8 kilotonnes. Revenue expectations were similarly reduced, from 280 million Australian dollars to 220 million AUD.

Diverging Analyst Views on Valuation

Market experts are divided on the equity's outlook. Some emphasize the firm's strategic role and long-term potential, while others question near-term profitability given the persistent production challenges and diminished political impetus.

From a technical perspective, the stock is signaling oversold conditions with a Relative Strength Index (RSI) reading of 36.9. The current share price sits notably below the 50-day moving average of €8.07, though it still holds marginally above the 200-day average of €6.81. A decisive break below this longer-term support level could trigger further selling pressure. The upcoming quarterly results will provide a clearer picture of the financial impact from the power supply issues.