The Zhitong Finance App learned that Guojin Securities released a research report saying that according to SMM, Myanmar's rare earth import gates are currently closed, and industry insiders expect this situation to continue until the end of the year. Currently, domestic smelting and separation plants still have raw material stocks for 2 months. If raw material stocks are exhausted, medium to heavy rare earth prices may rise sharply; the supply of light rare earths will also improve. Myanmar's supply is disrupting or exceeding expectations, and the implementation of the “Administrative Regulations” is expected to bring about a “supply-like” effect in the industry. As China's dominant global industry, the strategic value of rare earths is expected to further increase in the context of fluctuations in the global geopolitical environment. The fundamentals of the industry are also recovering at the bottom. Rare earth state-owned groups and high-quality magnetic materials companies represented by the Northern Rare Earth Group and China Rare Earth Group are expected to benefit.

Incidents:

According to Mining.com, Myanmar's Kachin Independence Army (KIA) recently announced that it has taken control of the country's rare earth mining areas. Adamas Intelligence (Adamas Intelligence), a Canadian rare earth and battery metals research company, said that rebel control of the region may affect rare earth concentrate exports. Myanmar mines are the main component of the world's medium and heavy rare earth supply. The import volume in 2023 is nearly 0.05 million tons, and the domestic medium and heavy rare earth quota REO is only 0.019 million tons; it is estimated that Myanmar mines will account for about 10% of the world's light rare earth praseodymium in 2023.

The main views of Guojin Securities are as follows:

Future supply outlook for Myanmar mines: Some supply has been invalidated, and resuming production is highly difficult than in the past.

The implementation of the Administrative Regulations will impose higher levels of restrictions on imported minerals and secondary use. Due to environmental protection and various cost differences, Myanmar mines were used in the past as an important supplement to domestic medium and heavy rare earth quotas; the “Administrative Regulations” may increase restrictions and restrictions on the imported mine and waste industry. Under strong supervision and traceability, some sources of low prices may become ineffective supply, so it may be difficult for the subsequent supply of Myanmar mines to return to the high base of the past. The industry's cost curve is gradually rising. Myanmar mining is usually at the bottom of the industry's cost curve; under the “Administrative Regulations”, some low-price mining sources are not in compliance or have been abandoned, so the industry's cost curve is expected to rise.

Demand for terminals is good, and improvements in supply and demand are clear.

Demand for new energy vehicles, two-wheelers, home appliances, and industrial robots is good. It is estimated that global terminal demand will grow at 9% in 2024; the annualized growth rate of demand is also expected to remain 11% in 2024-2026. The quota growth rate has declined significantly. Considering the weakening supply of imported ore and waste, it is estimated that the global supply of praseodymium will grow by only 3% in 2024.

The triple bottom of inventory, price, and profit for mainstream companies became clear this year.

Prices dropped twice to 0.35 million yuan/ton this year, even though the selling pressure on some non-compliant raw materials brought about before the “Administrative Regulations” came into effect; prices fell for nearly three years. Traders sold off, magnetic material manufacturers reduced inventory cycles, and the entire industry's inventory fell to a 5-year low. As prices entered the bottom range, 24H1 rare earth listed companies were generally in a loss situation; as prices picked up in 3Q24, profits improved significantly from month to month.

There is still plenty of room for rare earth demand.

As currently the best balanced performance or the optimal solution for the magnetic components of hollow cup motors and frameless motors for humanoid robots, rare earth permanent magnets are expected to directly benefit from the boom in humanoid robots. With large-scale equipment renewal support measures gradually being implemented, considering that rare earth industrial motors currently have good energy efficiency and low penetration rate, the bank estimates that the industrial motor sector will have a CAGR of more than 60% in 2023-2026 under normal circumstances, or the biggest increase in rare earth demand in 2023-2026.

Pay attention to layout opportunities brought about by “supply reform” + integration.

The rare earth industry can be described as a model industry for central state-owned enterprise reform. After years of integration, it has formed a state-owned asset system led by “Beiqing Nanzhu” and Shenghe Resources. Northern Rare Earths has a stable position as a leader in light rare earths; China Rare Earth Group holds medium to heavy rare earths, and the group still has many assets in the group that compete with the listed company China Rare Earth in the same industry, and the group has issued a commitment to resolve competition issues in the industry. The implementation of the “Administrative Regulations”, the bank believes that it may be directly beneficial to rare earth groups that are absolutely leading in terms of qualifications, technology and industry position.

Investment advice:

It is recommended to focus on Northern Rare Earth (600111.SH), Jinli Permanent Magnet (300748.SZ), and Zhongke Sanhuan (000970.SZ).

Risk warning: demand falls short of expectations, supply exceeds expectations, rare earth prices fluctuate.