From Haitong, one of the larger Chinese brokerages:
OnMarch 1st, the State Council Information Office held a press conference. XiaoYaqing, Minister of Industry and Information Technology, said, “China’s rareearths did not sell at a rare price, but sold at a price of soil. It is becauseof vicious competition and competitive price reduction that this precious rareearth resources are wasted". Favored by this news, the rare earth and rareearth permanent magnets sector of A shares rose sharply. Among them, NorthernRare Earth +10%, Guangsheng Nonferrous Metals +10%, Jinli Permanent Magnet+10%, Minmetals Rare Earth +9.7%, and Shenghe Resources +8.0%.
Some problems in the rare earth industry need to beregulated.Minister Xiao Yaqing mentioned at the press conference that the Ministry ofIndustry and Information Technology issued the "Regulations on theManagement of Rare Earths (Draft for Comments)" in January this year,mainly in accordance with the long-term development strategy and market demandof rare earths, as well as the problems existing in actual development.Regarding regulations, these issues include: 1) Because of vicious competitionand competitive price reduction, rare earths did not sell at the “rare” price,but sold at the price of soil. 2) There are many environmental problems in rareearth production enterprises. 3) Disorderly mining leads to waste of resources,and the efficiency of comprehensive utilization of resources is very poor. 4)The low-level development of rare earths repeats very much, while thehigh-level rare earth products are relatively few, which is not conducive totechnological innovation and technological progress.
China's rare earth mines and smelting separation productsaccount for 60%/90% of the world. China has long been the world's largestproducer of rare earth mines and rare earth smelting and separation products.The output in 2020 will be 140kt and 194kt, accounting for 60% and 90% of theworld's total output. From a domestic perspective, the production of rareearths is mainly concentrated in the six major rare earth groups. In 2021, thefirst batch of rare earth production quotas is 84kt, with an annualization of168kt, an increase of 20% YoY, of which Northern Rare Earth Group accounted for53% and Southern Rare Earth 29% of the group, 12% of China's rare earths, highindustry concentration. However,there was a phenomenon of unauthorized mining and random mining. The output ofblack rare earth reached ~20kt/accounting for 15%+, which made domestic supplysurplus and low prices.
The mining and production of rare earths involvesenvironmental protection issues. Rare earth mining, especially the smeltingand separation process, will cause pollution. In the past few years, someoverseas mines have reduced production or even shut down due to environmentalissues, and some planned projects have stalled due to environmental issues.With the increase in domestic attention to environmental issues, productionregardless of environmental costs will be expected to be controlled, which willalso increase the average production cost of the rare earth industry to acertain extent.
Rare earths are mainly used in rare earth permanentmagnet materials, and new energy vehicles are the biggest source of growth. Rare earth has a widerange of applications, including industrial, automotive, electronics, militaryand consumer products. Among them, rare earth permanent magnets are the largestconsumer field, accounting for ~25%, followed by petroleum catalysts at 15%,polishing powders at 14%, and hydrogen storage materials at 14%. . Rare earthpermanent magnets are used in various motor products because of their uniquemagnetoelectric properties. Their downstream consumption includes 45% ofautomobiles (40% of traditional automobiles + 5% of new energy automobiles),10% of wind power motors, 9% of inverter air conditioners and consumerelectronics 9 %Wait. Among them, the amount of bicycle magnetic materials usedfor new energy vehicles is 3-4x that of traditional vehicles. We believe thatwith the rapid growth of new energy vehicle sales, the proportion of new energyvehicles in the consumption of rare earth permanent magnets is expected toincrease from 5% to 20% in the future +.
We believe that the government's strengthening of themanagement of the rare earth industry will effectively slow down the phenomenonof illegal production and improve the problem of oversupply. At the same time,the promotion of the new energy automobile industry chain will also stimulatethe demand for rare earths. In the future, the price of rare earths will remainat a reasonable level, which will benefit the compliance with productionquotas. enterprise.
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