Lithium and Rare Earth Stocks Down 3%+: Is This the Buying Opportunity?

After surging on the back of the Australia-US critical minerals deal just weeks ago, three of Australia’s biggest critical minerals producers have pulled back sharply. Pilbara Minerals (ASX: PLS), Lynas Rare Earths (ASX: LYC), and Iluka Resources (ASX: ILU) each fell more than 3% this week as profit-taking set in and concerns about China’s trade posture resurfaced. For investors who missed the initial rally, the question now is whether this pullback represents a genuine buying opportunity or the start of something more concerning.

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What’s Behind the Critical Minerals Sell-Off?

Three main reasons are behind the recent drop in critical mineral stocks. First, investors are taking profits after strong gains. Pilbara is still up 35% this year, and Lynas has risen over 60% from its lows. When stocks climb quickly, a 10–15% dip is common as traders cash out.
Second, there’s uncertainty around China’s export rules. Beijing announced major restrictions on rare earths in October, but talks with the US may delay them. This back-and-forth causes sharp price moves as markets try to figure out what it means.
Third, commodity prices are still weak. Lithium has bounced 30% since June but is far below its 2022–2023 highs, squeezing producer profits and slowing short-term growth.

Stock-by-Stock: Which Critical Mineral Stocks Are Worth Buying?

Pilbara Minerals (ASX: PLS) – $2.95

Pilbara hit record production of spodumene concentrate, the raw lithium ore used in batteries, climbing 4% year-on-year despite weak prices. That operational strength matters because the company can now turn any lithium price recovery directly into profits without needing fresh capital. With $1 billion in cash providing roughly three years of runway, management has breathing room to weather volatility.
The catch? At $2.95, Pilbara already reflects optimism about lithium’s eventual recovery. If prices stay weak through 2026, earnings will disappoint.

Our verdict:
Hold for current investors
Wait for new buyers; look for $2.70-$2.80 support

Lynas Rare Earths (ASX: LYC) – $14.02

Lynas is the only significant rare earth producer outside China, giving it strategic value beyond just commodity exposure. The company produces neodymium-praseodymium (NdPr), the magnetic material essential for EV motors and wind turbines. Its $1.5 billion expansion now delivers 12,000 tonnes annually, representing roughly 7% of global non-Chinese supply.
That may sound technical, but here’s why it matters: China controls 90% of rare earth processing and recently imposed export restrictions. Western governments are desperate for alternative suppliers, positioning Lynas as a critical strategic asset. However, at $14, the stock already trades near analyst consensus targets of $15.94, suggesting limited upside from current levels.

Our verdict:
Hold if you own it
Wait for pullback to $12-$13 for new positions

Iluka Resources (ASX: ILU) – $6.16

Iluka offers the best risk-reward of the three. Unlike pure-play rare earth miners, Iluka generates stable cash flow from its mineral sands business (zircon and titanium dioxide), reducing volatility while its rare earths refinery at Eneabba ramps up with government backing. Trading at $6.16 against a $7.17 consensus target provides 16% upside with downside cushioned by the mineral sands division.

Our verdict:
Buy- best entry point of the three right now

Should You Buy the Dip in Critical Mineral Stocks?

The Bull Case: Long-term demand for critical minerals is solid, thanks to electric vehicles, clean energy, and defence needs. Australia’s partnership with the US brings funding stability and lowers project risk. China’s export limits could actually help Australian producers by speeding up Western supply chain shifts. With governments keen to reduce reliance on China, these stocks have strategic value beyond just commodity prices.

The Bear Case: Short-term supply concerns remain, especially for lithium as global output grows. China might use its market dominance more aggressively, causing price swings. If EV growth slows or battery tech changes, prices could stay low longer. Some stocks already look priced for best-case scenarios.

For aggressive investors: Iluka offers the best entry point with its diversified revenue streams and government-backed rare earths project. Pilbara provides leveraged exposure to lithium’s eventual recovery but requires patience and tolerance for volatility.

For conservative investors: This feels more like a pause than a panic. Wait for clearer signs of demand stabilisation or deeper pullbacks. A 15-20% correction from recent highs would create more attractive risk-reward ratios. The long-term thesis remains compelling, but timing matters when commodities are involved.

Bottom line: The critical minerals story isn’t broken, but it’s taking a breather. Iluka looks buyable here for patient investors. Pilbara and Lynas warrant watching for better entry points closer to $2.70 and $12, respectively.