The Lynas Rare Earths Ltd (ASX: LYC) share price has plunged more than 28% since the start of February.
Let's take a look at what's been troubling the former ASX darling, and what its prospects are.
What does Lynas do?
Lynas holds a unique position in the global resources trade as one of the few producers of rare earth minerals outside of China.
Rare earths are used in all sorts of items, including military equipment, mobile phones, electric cars, satellites, and wind turbine systems.
The minerals are prevalent all over the world, but for decades western countries were content to allow China to dominate mining, and the complex processing, in return for cheap production.
But with the geopolitical instability in recent years, there is now a mad scramble to secure rare earths supplies outside of the communist regime.
"Western governments finally realise how their own lack of policy and companies' commercial priorities have left them vulnerable to China's ability to wreak havoc by cutting off supply at will," said AFR columnist Jennifer Hewitt this month.
"Increasingly, national security concerns are interwoven with economics in terms of processing capacity."
So that should all make Lynas invaluable, right?
Yes, and it showed in its share price climbing almost nine-fold from March 2020 to January 2022.
But this year some cracks in its prospects have appeared.
One big development that frightened investors is that electric vehicle maker Tesla Inc (NASDAQ: TSLA) flagged the possibility of using permanent magnets in its cars, rather than the more expensive rare earths ones.
So the big question for long-term investors now has to be whether Lynas stocks need electric cars to flourish?
Will Lynas suffer from lower demand for rare earths?
The opinion among professional investors seems to be "not really".
Yes, the demand from electric cars absolutely helps Lynas, but rare earths are used in so many other situations that it's not the be-all and end-all.
"Tesla, and EVs in general, are just one of many demand sources of rare earth materials," said Shaw and Partners portfolio manager James Gerrish back in March.
"We continue to like Lynas, the biggest player in the space outside of China."
Besides, any alternative technology away from rare earths will take Tesla — or anyone — years to develop.
"Very little detail was provided on the plans and we think there is a lot of work to get through before this becomes a reality."
According to CMC Markets, a whopping 11 out of 14 analysts currently rate Lynas Rare Earths as a buy. None recommend selling.
It seems the current price dip is a buying opportunity, rather than the start of a long-term decline.
