Lynas Shares Plunge from Peak Amid Shifting Geopolitical Winds

Lynas AU000000LYC6

The stock of Australian rare earths producer Lynas has undergone a dramatic reversal of fortune. After hitting a 14-year high in mid-October, the share price has collapsed by more than 40%. This sharp correction is primarily attributed to a surprising diplomatic thaw between the United States and China, which has temporarily eased market fears over critical mineral supply chains.

The recent meeting between U.S. President Donald Trump and China's President Xi Jinping has fundamentally altered the investment thesis for companies like Lynas. Their understanding includes tariff reductions and a one-year postponement of export controls on critical minerals. What was previously viewed as a strategic necessity—building alternative supply chains outside of China—now appears less urgent.

Key outcomes of the diplomatic easing include:
- A reduction in trade tariffs between the two superpowers
- A deferral of export restrictions on critical raw materials
- The erosion of the geopolitical risk premium baked into share prices

From Record Highs to a Steep Decline

In mid-October, Lynas equity reached a peak of A$21.64, a level not seen for 14 years. Since that high, the stock has shed 41.77%, currently trading around A$12.60. Despite this recent severe pullback, the shares remain up 93.96% since the start of the year.

The autumn rally was initially fueled by a strategic partnership agreement between the U.S. and Australia. President Trump and Prime Minister Anthony Albanese had committed to significantly expanding the mining and processing of rare earths outside of China. The goal was to reduce Western reliance on Chinese exports, which control approximately 70% of global trade in these materials.

Operational Headwinds Compound Pressures

Beyond geopolitical factors, Lynas is contending with its own operational challenges. The company has warned of a one-month production shortfall in the current quarter. This is due to significant power supply disruptions at its processing plant in Kalgoorlie, Western Australia.

Divergent Views from Market Experts

Analyst opinions on the stock's valuation are split. The average price target among researchers stands at A$15.59, implying a potential upside of 23.42% from current levels. However, recommendations range from strong buy calls to sell ratings.

Macquarie maintains a A$17 price target, citing persistently tight market conditions for rare earths. In contrast, Ord Minnett recommends selling the stock, arguing that the shares have become overvalued following their massive performance this year.

The Long-Term Outlook Remains Firm

Despite the near-term geopolitical shift, the long-term demand fundamentals appear intact. S&P Global forecasts a potential doubling of revenue by the 2026 fiscal year. Total production of rare earth oxides could increase by 53% to 16,100 tonnes, while average realized prices are projected to rise by 47%. Underlying demand from electric vehicles, wind turbines, and high-tech electronics continues to grow, even if the immediate geopolitical urgency has subsided.