On a day when the S&P/ASX All Ordinaries Index (ASX: XAO) is trading lower (down 0.6% at the time of writing), ASX rare earth stocks are particularly under pressure today.
At the time of writing, shares in Iluka Resources Ltd (ASX: ILU) are down around 4%, while shares in Arafura Rare Earths Ltd (ASX: ARU) have fallen 7%, but the Lynas Rare Earths Ltd (ASX: LYC) share price is holding up far better than its major peers.
At the time of writing, Lynas shares are trading marginally higher following a market announcement this morning.
Why are Lynas shares holding up?
The relative strength reflects an announcement released by the company earlier today.
Lynas announced a US$96 million rare earth supply framework with the United States Department of War, which included a floor price of US$110/kg for the supply of NdPr oxide.
NdPr oxide is a critical rare earth compound of Neodymium and Praseodymium. It’s a critical resource in the production of various electronic devices ranging from smartphones to fighter jets (the latter being of more interest to the US Department of War). Â
The floor price gives Lynas some downside protection in the event that prices for NdPr dip below US$110/kg, although current prices are above that point.
The move is a further step by the US and other Western governments to secure critical supply chains of rare earths minerals, and Lynas, one of the largest rare earths producers outside China, appears to be well-positioned.
Foolish bottom line
Lynas has already been one of the best-performing resources stocks on the ASX over the past year, with its share price surging more than 170% in the last 12 months.
After such a strong run, some volatility across the sector isn’t surprising, but today’s trading suggests that positive strategic news can still help Lynas outperform its peers, even when the broader rare earths sector is under pressure.
The post Rare earth stocks are tumbling today. Here’s why the Lynas share price is holding up appeared first on The Motley Fool Australia.
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More reading
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Motley Fool contributor Kevin Gandiya has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Lynas Rare Earths Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.