A sell-down in ASX-listed rare earths stocks has occurred, triggered by retail investors vacating positions following an apparent easing of trade tensions between the United States and China, according to UBS mining analyst Dim Ariyasinghe. Several companies experienced significant drops on Wednesday morning. Lynas declined by 4.1 per cent, Iluka was down 4.4 per cent, Arafura Resources fell 10.4 per cent, and Australian Strategic Materials decreased by 9.1 per cent. Lynas Rare Earths is an Australian company that mines and processes rare earth minerals, while Iluka Resources is a global critical minerals company.
Ariyasinghe noted the impact of retail inflows in commodities like gold and rare earths, suggesting these investors may have shorter investment horizons than institutional investors. While near-term sentiment has been affected by progress in US-China relations, Ariyasinghe cautioned that this progress may not be sustainable. Despite the current downturn, UBS maintains a bullish outlook on the rare earths sector, holding neutral ratings on both Lynas and Iluka.
UBS believes many of the fundamental issues between the US and China are unresolved, merely postponed. The firm remains positive about the development of rare earths production outside of China, viewing the current activity as the beginning of a governmental response from the US and the West. They anticipate further policy measures to support the sector.
Ariyasinghe also noted that a broader equity sell-off could create challenges for new rare earths miners seeking to establish operations. This situation could strengthen the position of well-capitalised companies like Lynas, further solidifying its market advantage.
