Since January 22, 2025, the Hong Kong stock market's rare earth Sector has truly welcomed a "thorough and enjoyable" period of increase.

During the period, the Sector continuously rose, recording increases of 10.30%, 8.62%, 26.13%, and 7.92% on January 24, February 6, February 19, and February 24, respectively, and until now, it has accumulated over 80% growth in 22 trading days. Among them, the Concept stock Jl Mag Rare-Earth (06680) has also seen an accumulation of over 85% growth, making such a surge quite eye-catching among various Sectors and Concept stocks.

(Market information source: Futu)

From the perspective of news, there are plenty of Bullish policies.

On February 19, to implement the "Rare Earth Management Regulations", the Ministry of Industry and Information Technology issued the "Total Quantity Control Management Measures for Rare Earth Mining and Rare Earth Smelting and Separation (Interim) (Public Consultation Draft)" (hereinafter referred to as the "Control Management Measures") and the "Rare Earth Product Information Traceability Management Measures (Interim) (Public Consultation Draft)" (hereinafter referred to as the "Traceability Management Measures"), soliciting public opinions from society.

The draft of the Regulatory Management Measures clearly states that rare earth mining enterprises and rare earth smelting and separation enterprises should be large rare earth conglomerates promoted by the state, reinforcing the leading position of China Rare Earth and China Northern Rare Earth in the Industry, which helps enhance Company Valuation. The draft of the Traceability Management Measures specifies that the Ministry of Industry and Information Technology, together with the Ministry of Natural Resources, the Ministry of Commerce, the General Administration of Customs, and the State Administration of Taxation, will establish a rare earth traceability system to strengthen the full-process traceability management of rare earth products and promote data sharing among related departments. This will enhance the actual effect of controlling the total supply of rare earths, thus significantly improving the ability to influence rare earth prices from the supply side.

As is well known, there has never been "smoke without fire" in the secondary market; what deeper meanings lie within the sectors benefiting from this policy? How will it boost Industry development?

Enhancing supply-side management, the policy intent to "stabilize prices" is evident.

Looking back at 2024, affected by market conditions and industry supply-demand cycles, the prices of major Rare Earth products quickly fell in the first quarter, while in the second and third quarters, Rare Earth product prices fluctuated at low levels. Entering the fourth quarter, some Rare Earth product prices improved and rebounded from the bottom.

By the end of 2024, according to data from the China Rare Earth Industry Association, the rare earth price Index will be 163.8 points, down 17.27% from the highest point of 198 points on January 2 of the same year. In the spot market, the average price of praseodymium-neodymium oxide on December 31 is 0.398 million yuan/ton, a decrease of 10.16% compared to the price of 0.443 million yuan/ton at the beginning of the year (January 2).

(Image source: CHINA RAREEARTH Industry Association)

Affected by the downward fluctuation of rare earth product prices, the performance of Rare Earth Metals concept stocks in 2024 is also mostly underwhelming.

In the first three quarters of 2024, Rising Nonferrous Metals Share and Inner Mongolia BaoTou Steel Union recorded net losses of 0.276 billion yuan and 0.516 billion yuan, with revenue decline rates of 43.85% and 6.94% respectively. During the same period, among the Rare Earth Metals giants, only Xiamen Tungsten (600549.SH) achieved positive growth in net income, with net profit attributable to shareholders rising 20.78% year-on-year to 1.402 billion yuan, while revenue dropped 10.70% year-on-year to 26.369 billion yuan. Meanwhile, China Northern Rare Earth (00769,000831.SZ) experienced both revenue and net profit declines, with revenue falling 13.5% year-on-year to 21.56 billion yuan, and net profit decreasing 70.64% year-on-year to 0.405 billion yuan.

In contrast, the Hong Kong stock market concept stock Jl Mag Rare-Earth (06680) also saw a decline in its performance. In the latest earnings forecast, the company's net income attributable to shareholders for 2024 is expected to decrease by 42%-52% compared to the previous year, primarily due to the significant drop in Rare Earth Metals raw material prices and the impact of cost expenses related to the Ningbo and Baotou factories.

Against the backdrop of fluctuating Rare Earth Metals prices and generally poor performance of concept stocks, Zhiyitong Finance APP believes that the introduction of the "Regulatory Management Measures" and "Traceability Management Measures" draft is a shot in the arm, conducive to promoting the healthy, sustainable, and high-quality development of the Rare Earth Metals industry.

The "Regulatory Management Measures" draft intends to redefine the scope of Rare Earth Metals under the indicators, adding lone stone mines under the Rare Earth Mines indicator and including Overseas imported Rare Earth Minerals products under the Rare Earth Smelting Separation indicator. This adjustment means that companies producing Rare Earth Metals products through these two channels will be subjected to strict supervision, resulting in a tightening of the Rare Earth Metals supply side.

In 2024, the global production of praseodymium-neodymium oxide is about 0.105 million tons. According to data from China's General Administration of Customs and Baichuan Yingfu, China is expected to import approximately 83,487 tons of Rare Earth Minerals equivalent to REO from major countries in 2024, equivalent to about 16,697.4 tons of praseodymium-neodymium oxide, which accounts for roughly 16% of the global supply in 2024. This part of the supply will be significantly affected by national quota controls in the future, with a notable increase in uncertainty.

The determination of Rare Earth Metals indicators has primarily relied on self-application by various companies in the past; however, the model for setting Rare Earth Metals indicators may undergo significant changes, directly researched and drafted by the Ministry of Industry and Information Technology, Ministry of Natural Resources, and National Development and Reform Commission for the annual Rare Earth Metals indicators, reflecting the state's enhanced macro-control over the Rare Earth Metals industry.

The "Traceability Management Measures" propose a brand new product traceability concept, applicable to companies including Rare Earth Mining, Smelting Separation, Metal Smelting, Comprehensive Utilization, and Rare Earth Products Export companies. Among them, the Rare Earth Recycling companies (comprehensive utilization companies) have had serious problems with illegal Rare Earth mining, with some companies illegally mining Rare Earth for production. If the new measures are implemented, product traceability will effectively crack down on illegal supply and purify the Rare Earth Metals market.

It is worth noting that if the "Regulatory Management Measures" (draft) and "Traceability Management Measures" (draft) are formally implemented, they will form a combination with the "Rare Earth Management Regulations" which will take effect on October 1, 2024, further tightening and controlling the Rare Earth Metals supply side. From the perspective of the supply and demand pattern in the industry, the supply and demand in the Rare Earth Metals industry is expected to maintain a tight balance, with Rare Earth Metals prices likely to rise. In terms of short-term sentiment and long-term supply and demand logic, the Rare Earth Permanent Magnets sector is expected to perform well in the future.

Humanoid robots are entering the "year of mass production," and the demand for Rare Earth Metals continues to be vast.

The downstream application scenarios of rare earth magnetic materials are broad. According to a report by Shanghai Securities Journal quoting Frost & Sullivan, the global consumption of high-performance Rare Earth Permanent Magnets is expected to have an annual growth rate of 17.2% from 2023 to 2028. In terms of end-demand, the growth in new energy vehicles, energy-saving frequency conversion Air Conditioners, wind power generation, robots, and industrial Servo Motors is noteworthy.

Among these, with the continuous maturity of robotics technology, industrial robots and humanoid robots are expected to become the next explosion of demand.

Based on data.

In the field of robotics and Intelligent Manufacturing, Servo Motors are the key equipment that controls the flexible movement of robot joints, requiring high precision, speed, overload capacity, stability, and speed response. High-performance neodymium-iron-boron magnetic materials have become ideal materials, helping to achieve lightweight design while improving power density and enabling rapid response.

From the perspective of industrial development pace, the humanoid robotics industry is expected to enter the year of mass production in 2025, with commercialization exploding in 2026.

From the overseas market perspective, 2024 is the year of the global humanoid robot prototype release, with examples such as 1XTech launching the bipedal humanoid robot NEO, Kepler releasing the Pioneer K2, and Boston Dynamics introducing the electric version of the humanoid robot entering Atlas. In 2025, the humanoid robotics industry is expected to enter the phase of mass production and concentrated function testing, with Musk indicating that Tesla aims to produce 0.01 million Optimus robots by 2025, and if all goes well, Tesla may begin mass production of 0.01 million robots per month by mid-2026.

Domestically, some leading companies have relatively early achieved small-batch mass production. UnitreeH1, under Yushu Technology, is the first capable humanoid robot in China, showcasing its technical strength during the Spring Festival Gala performance in 2025, having completed its first batch of commercial small-scale deliveries in October 2023. As of January 6, 2025, the 1000th general-purpose embodied robot from Zhiyuan Robotics rolled off the production line, with the cumulative production of bipedal humanoid robots reaching 731. Additionally, the new generation of industrial humanoid robots from UBTech has also progressed well in training, showing promise for large-scale delivery.

With the arrival of the "mass production year" for humanoid robots, the industry market scale is undoubtedly expanding rapidly — according to data from the "Humanoid Robot Industry Research Report", China has become a global leading producer of humanoid robots, with the market size expected to reach approximately 2.76 billion yuan by 2024, and is likely to grow into a "hundred billion market" by 2030. Goldman Sachs predicts that by 2035, the global humanoid robot market size will reach 154 billion dollars.

The humanoid robot sector alone can stimulate a demand scale of hundreds of billions, and when combined with major application areas like Electric Vehicles and wind power, the demand for Rare Earth Metals is evidently promising for the future.

According to GTJA Securities, as the domestic Rare Earth Metals Index transitions from a strong supply release cycle to a supply constraint pattern, coupled with the fact that overseas planned increases are numerous but actual releases are slow, the effects of supply-side constraints are beginning to show. The demand for Electric Vehicles and wind power continues to grow, and the equipment renewal demand for industrial Electric Machines effectively raises the demand curve for 2025-2026, potentially becoming an important source of demand growth for Rare Earth Metals; furthermore, with the expansion of application scenarios for Siasun Robot&Automation, 2025 may once again mark a big year for the growth of Rare Earth Permanent Magnets.

In summary, it is not difficult to see that, in terms of policy, tightening supply controls to alleviate the excess supply pressure of Rare Earth Metals will drive the currently bottomed prices of Rare Earth Metals to rebound and significantly improve the performance of the Rare Earth magnetic materials industry. Additionally, the Rare Earth control policies will further strengthen the leading position of Rare Earth conglomerates in the industry, benefiting valuation improvements. On the demand side, with the accelerated development of electric intelligent vehicles, humanoid robots, and Drones, there will be long-term Bullish prospects for the demand of Rare Earth permanent magnet efficient electric machines. Therefore, it is recommended to pay attention to domestic Rare Earth leaders such as China Northern Rare Earth and CHINA RAREEARTH, as these stocks have deep resource barriers, stable market shares, and benefit from the high prosperity of Rare Earth demand like Jl Mag Rare-Earth.