Over the weekend, the rare earth industry ushered in major policy benefits!
The "Regulations on the Administration of Rare Earths" was adopted by the 31st executive meeting of the State Council on April 26, officially promulgated on June 29, and came into force on October 1. As an important regulation of the rare earth industry, the draft was issued in January 2021, and it was finally implemented after three and a half years.
There are 32 articles in the "Regulations", and the overall idea is to promote the high-quality development of the rare earth industry. Among them, the most concerned is that the punishment will be increased: "for rare earth mining enterprises and rare earth smelting and separation enterprises that violate the regulations on total volume regulation and control, the illegal production of rare earth products and illegal income will be confiscated, and a fine of between 5 and 10 times of the illegal income will be imposed", which is more severe than the draft released in 2021.
1. The golden age of rare earths
Rare earths are called "industrial vitamins" and "industrial monosodium glutamate", and the new name in recent years is "the mother of new materials", smart phones, permanent magnet engines, nuclear fuel rods, radars, airplanes, humanoid robots, etc., all have to add rare earths, and the more high-end the more inseparable from this thing.
One out of every five patented inventions in the world is related to rare earths. Without rare earths, there would be no iPhones, Teslas, and high-speed rail, and world oil prices could be twice as expensive as they are now, because the conversion rate of crude oil is only half of what it is today. Therefore, rare earths are also a strategic resource for various major countries to compete for.
In recent years, Europe and the United States have continued to suppress our high-tech, and netizens have called for rare earths to be used as a counterweapon to restrict the export of rare earths. This has happened in history.
In 2010, after the conflict between China and Japan over the Diaoyu Islands, China directly lowered the export quota of rare earths by 72%, and all rare earth companies also voluntarily stopped exporting rare earths to Japan. In just a few months, international rare earth prices have risen more than 15 times. By 2012, the price of rare earths had soared to US$557,000 a tonne, 36 times that of 2005.
Japan's two major economic pillars of automobiles and electronics are big eaters of rare earths, affected by the news, Japan's two major industries collectively fell to the limit, Europe and the United States also followed the gun, the king of the US military industry Lockheed Martin was also forced to announce the suspension of production. But then we lost the WTO lawsuit, and we had to cancel the rare earth export quota system and tariffs, and the price of rare earths plummeted.
After the WTO lost the lawsuit, the rare earth defense war shifted from administrative means to the "national team" entry integration stage.
In 2016, the 13th Five-Year Plan for the development of the rare earth industry was officially promulgated, which opened the curtain of the integration of the rare earth industry. Under the leadership of the state, the "1+5" rare earth enterprise group was established.
In 2021, the Ministry of Industry and Information Technology drafted the Regulations on the Administration of Rare Earths (Draft for Comments), which clearly establishes a management system for the total amount of rare earth mining, smelting and separation, and no unit or individual shall produce without or beyond the index.
In the same year, China Rare Earth Group was established, and the pattern of the six major rare earth groups was broken, forming a north-south echo between China Rare Earth Group and Northern Rare Earth, and a two-giant competition pattern of "one south and one north".
Now, the rare earth industry environment is no longer what it used to be. From being blocked by technology, to the rampant black rare earths, the wild era of rare earths being sold as cabbage, and then to the integration of the national team, the situation of "many, scattered and small" in the domestic rare earth industry has been fully reversed, and the rules of the game have been formed for the total control by the state.
At present, China's rare earth reserves account for 37% of the world's and production accounts for about 97% of the world's total, and China's rare earths are in a leading position in the world. In the era of "electric drive for everything", high-tech industries such as new energy vehicles and humanoid robots are developing rapidly, and the rare earth industry will continue to develop in the medium and long term.
From the perspective of the industrial chain, in terms of upstream raw materials and midstream processing, we dominate the world, but we are still relatively weak in downstream deep processing. The "Regulations" point out the direction for the next stage of development of the rare earth industry, which is to promote the high-quality development of the rare earth industry, improve the utilization rate, and increase the proportion of high value-added products.
2. Rare earth permanent magnets smashed out of the valuation "pit"
There have been many speculations in the A-share market about the rare earth permanent magnet sector, but most of them are news-driven concept hype. The most recent was the explosive growth of rare earth demand driven by new energy in 2020, and after 2021, the rare earth sector continued to decline due to the decline in industry prosperity and other factors. Since the beginning of this year, affected by the decline in rare earth prices, Keheng shares, Shengxin Lithium Energy, Jinli Permanent Magnet, Earth Bear, and Ningbo Yunsheng have fallen by more than 30% during the year.
Under the policy of "equipment renewal" and "trade-in", under the neutral assumption, the agency estimates that the compound growth rate of demand in the field of industrial motors from 2023 to 2026 will be 65% respectively; From 2024 to 2026, the overall demand for rare earths in new energy vehicles and other fields will grow by 9%, 12% and 12% year-on-year respectively. It is predicted that the annual quota growth rate of rare earths in 2024 will be 12% or the balance point between supply and demand, and rare earth prices may have reached the bottom.
From the perspective of valuation, after three and a half years of adjustment, rare earth permanent magnets smashed out of the valuation "pit".
At present, the price-to-book ratio of Shenwan rare earth plate is 3.07, which is only higher than 0.78% in the past ten years. The price-to-book ratio of Shenwan magnetic materials industry is 2.14, which is only higher than the 8.18% in the past ten years. The earnings ratio of the rare earth permanent magnet concept stock market is also moving further downward. As of the close of trading on June 28, the price-earnings ratio corresponding to the 2024 institutional forecast profit of rare earth permanent magnet concept stocks such as Hengdian East Magnetic, Xiamen Tungsten, China Nonferrous Metals Co., Ltd., and Zhenghai Magnetics has been less than 20 times.
At present, the price of many rare earth products has been reduced to the lowest point in the early stage, such as terbium oxide, dysprosium oxide and dysprosium ferroalloy, in the case of supply contraction, upward demand, low inventory and rare earth prices close to the cost line, once the rare earth price stops falling and rebounds, the rare earth plate may have the opportunity to repair the bottom upward. However, the key point is to see whether the price can stop falling and whether the profits of listed companies can resume growth.
3. Who is the A-share rare earth leader?
There are only 4 companies in the Shenwan rare earth sector, and the supply of domestic rare earths is highly concentrated.
The Ministry of Industry and Information Technology announced that in the rare earth separation and smelting indicators, China Rare Earth Group and China North Rare Earth Group have 30% and 70% respectively. China Rare Earth is the rising heavy rare earth overlord, responsible for the integration of domestic medium and heavy rare earth resources.
The biggest value point of Northern Rare Earth is that the controlling shareholder has mastered the world's largest rare earth mine - Baiyun Obo Rare Earth Mine. There is a rich father who owns a mountain of gold, and it is difficult to be poor.
The value of China Rare Earth lies in the fact that the company is the only listed company under China Rare Earth Group, and shoulders the task of integrating the group's rare earth assets, especially heavy rare earths, which are almost completely controlled by China Rare Earth. Moreover, China Rare Earth Group has made a commitment to solve the problem of peer competition within five years, and the listed company has a strong expectation of asset injection in the future.
The downstream deep processing of rare earth is mainly rare earth functional materials - rare earth permanent magnet materials, rare earth luminescent materials, rare earth catalysts, rare earth additives, etc. There are only 13 companies in the Shenwan magnetic materials sector.
It is easy for us to find that the domestic rare earth downstream industry is very general, the largest Zhongke Sanhuan has a revenue of less than 10 billion in 23 years, and the profit of Jinli Permanent Magnet, which has the best profitability, is less than 500 million in 23 years, and most of the enterprises have a revenue of less than 1.5 billion and a profit of less than 100 million.
Fourth, rare earth concept stocks combing
Rare earth resources and smelting
1. China Rare Earth: Medium and Heavy Rare Earth Leader
One of the six major rare earth groups, the only rare earth listing platform of China Minmetals, one of the largest ionic rare earth separation and processing enterprises in southern China, and the largest medium and heavy rare earth separation enterprise in China. The Group is committed to solving the problem of competition in the industry within five years, and has strong expectations for asset injection in the future.
2. Northern Rare Earth: The king of light rare earths
It is the largest supplier of light rare earth products in China and the world, and one of the six major rare earth groups in the rare earth industry in mainland China.
3. Rising Nonferrous Metals: Guangdong rare earth leader
One of the six major rare earth groups, the only rare earth listing platform of Guangdong Rare Earth Industry Group, it actually controls the only four rare earth mining licenses in Guangdong Province (including the custodian Guyun Mine), and is the only legal rare earth miner in Guangdong Province.
4. Shenghe Resources: Overseas rare earth leader
In cooperation with the U.S. Mountain Pass mining team, the company's annual output has exceeded 30,000 tons of REO, and it has become the largest rare earth mine outside China.
Magnetic:
1. Zhongke Sanhuan: a leading enterprise of rare earth permanent magnets
The company is the largest manufacturer of NdFeB permanent magnet materials in China and the second largest in the world, and the actual controller is the holding of the Chinese Academy of Sciences.
2. Jinli Permanent Magnet: capacity expansion
The company's products are used by the world's top 10 new energy vehicle manufacturers to produce drive motors; Eight of the top 10 manufacturers of inverter air conditioning compressors in the world are the company's customers; Five of the world's top 10 wind turbine manufacturers are the company's customers.
At present, the company's annual production capacity of high-performance NdFeB permanent magnet material blanks has reached 23,000 tons, and the annual capacity utilization rate will reach more than 90% in 2023. The company plans to build production bases in Ganzhou, Baotou and Ningbo, and will build a production capacity of 40,000 tons of high-performance rare earth permanent magnet materials and advanced magnetic component production lines by 2025.
3. Zhenghai Magnetics: National Single Champion of NdFeB Permanent Magnets
The company is recognized by the Ministry of Industry and Information Technology as a single champion enterprise in the national manufacturing industry of high-performance sintered NdFeB permanent magnets for new energy vehicles, and an enterprise with the most complete range of high-performance NdFeB permanent magnet materials. The coverage rate of top customers is high, with an average coverage rate of 90% for the top 10 international auto brands, the top 5 independent auto brands, and the top 5 new car brands. The company currently has a rare earth permanent magnet production capacity of 30,000 tons/year, and plans to achieve a scale of 36,000 tons/year by 2026.