Source: Finance from the media

Rare earths | Rare earth prices are soaring; the plate may welcome Davis double play

Source: CITIC Securities Research

Article丨Li Chao, Shang Li, Bai Junfei, Ao Chong

On July 29, the Wind Rare Earth Index soared by 7.87%, the highest increase. We comment on this as follows:

▍Supply disturbances are superimposed before replenishment, and rare earth prices may trend upward.

The prices of major rare earth products have risen rapidly since the beginning of July. The prices of praseodymium and neodymium oxide, terbium oxide, and dysprosium oxide have risen by approximately 24%, 23%, and 11% respectively. This year, the low season of rare earth downstream is not weak, and it is strongly driven by downstream demand such as new energy vehicles. The pre-requisite effect of replenishment is obvious. Due to the advent of the rainy season and the aggravation of the epidemic, the supply of rare earths in Myanmar has been disturbed. Superimposed on the recent national environmental protection inspections, some smelting and separation plants have cut production and stopped production. Supply and demand basically form strong support in the face of rare earth prices. Continue to emphasize the current round of rare earths The five core logics of bull market: 1) Reasonable and abundant liquidity; 2) Downstream demand drivers such as new energy; 3) Pro-cyclical allocation strategy for price increases; 4) National policy support; 5) Davis double-click on performance and valuation.

▍In 2025, new energy vehicles are expected to become the largest downstream application of rare earths.

Rare earth permanent magnet materials (NdFeB) account for about 80% of the output value of the downstream of the rare earth industry chain, and are mainly used in traditional automobiles, new energy automobiles, wind power, energy-saving inverter air conditioners and other fields. According to data from the China Association of Automobile Manufacturers, the production, and sales of new energy vehicles in June were 248,000/25.6 million, an increase of approximately 1.3/1.4 times respectively. From January to June, the production and sales of new energy vehicles were 1.215/1206 million, an increase of approximately 2 times. The amount of NdFeB used in new energy vehicles is about 3-5 kg, which is 3-5 times that of traditional cars. If the output of new energy vehicles will reach 18 million in 2025, the corresponding NdFeB demand will reach 54,000 to 90,000 tons in 2021. In 2025, the demand for neodymium-iron-boron in the new energy vehicle industry will grow at an average annual rate of about 40%. In 2025, new energy vehicles may become the largest downstream application of rare earths.

▍The "Regulations on Rare Earth Management" may be launched, and the rare earth industry is welcoming a historical turning point.

In early July, Wang Jiangping, Vice Minister of the Ministry of Industry, and Information Technology, pointed out that the “Regulations on the Administration of Rare Earths” will be promoted as soon as possible, national legislation will regulate the high-quality development of the rare earth industry, and the development of the rare earth industry will be raised to an unprecedented strategic height. 》Responding to each other, standardizing the import and export management of strategic resources with Chinese characteristics, strengthening the management of the entire rare earth industry chain, further clarifying the strategic reserve system of rare earth products and the management requirements of total volume indicators, and for the first time to unify and clarify the penalties for companies that violate regulations, and the cost of violations is greatly increased. , Disturbance on the upstream supply side of rare earths may be greatly reduced, and the fundamentals of supply and demand and policies are expected to resonate. Under the new situation, continue to firmly recommend the strategic allocation value of the whole industry chain of rare earths.

▍Supply and demand resonate with policy, and the price of rare earths may open up a long bull.

The demand for new energy vehicles has begun to explode. The downstream demand for carbon-neutral wind power and energy-saving inverter air conditioners continues to pick up, and the downstream demand for rare earths is expected to continue to improve. During the "14th Five-Year Plan" period, domestic rare earth supply will still be restricted by the total amount of mining indicators, and the black Supply-side high-pressure policies such as environmental protection and environmental protection will continue. It is expected that the increase in overseas supply in the next five years will be relatively limited, and the global supply and demand of rare earths may be in a tight balance for a long time. We raise the price forecast of praseodymium and neodymium oxide in 2021 to 800,000 yuan/ton, and maintain the forecast of dysprosium oxide and terbium oxide prices at 3 million yuan/ton and 15 million yuan/ton. The price of rare earths is expected to open for a long time. The performance of companies related to the rare earth industry chain may maintain a medium-to-high-speed growth trend for a long time.

▍Revaluation of the strategic value of rare earth resources under the new situation is in progress.

Rare earth is a non-renewable resource and a key element for a variety of functional materials in the high-tech field. In recent years, many economies around the world have successively introduced policies to include rare earths in their national strategic resource reserves. my country leads the world in rare earth smelting and separation and has the world's most complete rare earth industry chain. In recent years, the supply-side structural reform of the domestic rare earth industry has continued to advance, and applications such as downstream magnetic materials have developed rapidly. The fundamentals of supply and demand are expected to enter a virtuous cycle. Under the new situation, the strategic value of rare earth resources is expected to continue to increase.

▍Risk ​​factors:

Supply contraction is less than expected; downstream demand is less than expected; policy strength is less than expected.