Zhihong Finance APP has learned that Sinolink released a Research Report stating that the implementation of the "Total Control Management Measures" has commenced the supply-side reform of the rare earth industry. The agency believes that a series of policies and industry consolidation may follow, under the backdrop of fluctuations in the Global geopolitical environment, the strategic value of rare earths is expected to further enhance, and the industry fundamentals are also in the process of bottoming out and rebounding. Rare earth groups and magnetic materials symbols that penetrate the humanoid Siasun Robot&Automation industry chain are expected to benefit significantly. It's recommended to pay attention to CHINA RAREEARTH (000831.SZ), China Northern Rare Earth (600111.SH), Jl Mag Rare-Earth (300748.SZ), and Beijing Zhong Ke San Huan High-tech (000970.SZ).

Event: On February 19, the Ministry of Industry and Information Technology issued the "Total Control Management Measures for Rare Earth Mining and Rare Earth Smelting Separation" (hereinafter referred to as the "Total Control Management Measures") and the "Rare Earth Product Information Traceability Management Measures."

Sinolink's main viewpoints are as follows:

Regarding the control of imported ore smelting being realized.

The "Total Control Management Measures" indicates that rare earth mineral products include "domestically mined and selected rare earth mineral products, rare earth mineral products imported from overseas, and rare earth mineral products obtained from other rare earth-containing mineral by-products such as monazite, as well as various other types of rare earth mineral products, etc." The agency estimates that in 2024, the global rare earth supply will have a quota from our country, and the proportions of imported ore and waste are 50%, 22%, and 20% respectively. Therefore, compared to the previous quota system which only controlled domestic raw ore, the current "Total Control Management Measures" will explicitly regulate imported ore, further enhancing our country's control over the rare earth supply side.

The smelting implementation subject is clearly defined as the rare earth group.

For corporate entities, the "Total Control Management Measures" clearly state that "Rare Earth mining enterprises and Rare Earth smelting separation enterprises should be large Rare Earth Conglomerates (hereinafter referred to as Rare Earth Groups) established and promoted by the state, along with their affiliated Rare Earth mining and smelting separation enterprises." Currently, the Rare Earth Groups in China consist of CHINA RAREEARTH and China Northern Rare Earth.

The intention behind the supply reform is reflected in: combating non-compliant supply and concentration among leading players. Following the "Management Regulations," the "Total Control Management Measures" may further eliminate non-compliant supply that exists outside the established system within the industry. It is also stipulated that Rare Earth Groups are the main entities involved in domestic Rare Earth smelting separation activities, meaning leading central state-owned enterprises like CHINA RAREEARTH and China Northern Rare Earth will significantly benefit.

The disruptions in Myanmar also reflect the effects of supply reform.

In the past, Myanmar's ore was mainly absorbed by companies outside the Rare Earth Groups; according to SMM, the border in Myanmar has returned to normal operation as of December, but imports of Rare Earth from Myanmar have not yet resumed as expected. According to SMM, some traders involved in mineral imports have reported that local taxes and import-related costs in Myanmar have reached 0.07 million yuan per ton. Additionally, the mines generally use RBOB Gasoline Generators for power, and the gasoline prices in Myanmar are significantly higher than in China. Coupled with the huge electricity consumption of the mines, this has led to a substantial increase in mining costs in Myanmar. Aside from the poor economic viability, it is believed that following the implementation of the "Total Control Management Measures," the Industry Chain's willingness to procure from Myanmar's mines may shrink, and previously existing Low Stock Price sources may be eliminated. In 2024, Myanmar's ore will account for 9% of global praseodymium and neodymium supply; moreover, Myanmar ore is the most important source of heavy Rare Earth dysprosium and terbium supply globally. If supply disruptions continue, Rare Earth prices are expected to continue rising.

Quota growth is expected to be relatively slow.

As the first batch of quotas is set to be issued around 2025, based on the overall downward trend in Rare Earth prices for 2024 and the limited rebound, it is anticipated that the growth rate of quotas for 2025 may continue to maintain a low level.

With humanoid robots in the left hand and the low-altitude economy in the right hand, demand continues to catalyze.

Rare Earth Permanent Magnets, as excellent magnets balancing performance and cost, are the optimal choice for magnetic components in humanoid robots and materials for low-altitude aircraft, and the industry chain's introduction of dividends is expected to gradually manifest.

Emphasize the layout opportunities brought by 'Supply Reform' + Integration + Humanoid Robots Catalysis.

The Rare Earth Industry is a model for state-owned enterprise reform, having undergone years of consolidation, forming a rare earth group system of 'Northeast Light and Southwest Heavy.' China Rare Earth Group controls medium and heavy rare earths, with its mining varieties similar to those in Myanmar, and the group still has a substantial amount of Assets competing with the listed company China Rare Earth; the group has committed to resolving the competition issue. China Northern Rare Earth holds a solid leading position in light rare earths. The implementation of the 'Total Control Management Measures' is viewed as directly bullish for the two major rare earth groups; furthermore, the implementation of measures may lead to supply constraints, resulting in price increases, and the catalysis of humanoid robots is expected to raise the overall valuation of the Sector.

Risk Warning

Demand fell short of expectations, supply exceeded expectations, and rare earth prices are fluctuating.