Two consecutive days of strong gains exceeding 6%, will the rare earth sector usher in a "new cycle" in 2025?

The two-day strong rise of over 6% in the rare earth concept sector that has been silent for a long time has made a "eye-catching comeback". Observing, on January 6th and January 7th, the rare earth concept sector of the Hong Kong stock market continued to rise strongly, with gains of 3.81% and 3.09% respectively. The sector's gains over the two days were quite significant, ranking among the top in various industry sectors. Among them, Jl Mag Rare-Earth (06680), as one of the leading companies in the industry, rose more than 7% over the two days, currently trading at 8.07 Hong Kong dollars. Looking back at the trend of the rare earth concept sector in 2024, it can be summarized as "shock downward + bottom rebound". From the beginning of 2024 to early September, the sector has been in a downward trend, with a cumulative decline of over 40%. However, from the end of September to the end of December, the sector showed signs of recovery, with a cumulative increase of over 43%. Throughout the year, the sector accumulated a decline of over 15%. (Market source: Futu) In terms of news, the collective rise of the rare earth sector this time is mainly due to the continuous positive industry news in recent days and the expectation of continuous growth in downstream demand such as new energy vehicles. Specifically, in recent days, the National Development and Reform Commission and other departments jointly issued the "Implementation Plan for Promoting the High-Quality Development of the New Energy Vehicles and Power Battery Industry", proposing a target of 10 million annual sales of new energy vehicles by 2025, which will significantly boost the demand for rare earth permanent magnet materials. In addition, countries and regions like the United States and the European Union are increasing their strategic reserves of rare earths, which will also support rare earth prices. Of course, as the saying goes, "no wind comes from an empty cave", we may as well broaden our horizons and explore the mystery of the continuous rise of the rare earth sector from a deeper perspective. Rare earth prices fluctuating downward, 2024 performance is not "attractive" In 2020, the demand for new energy vehicles began to explode, and the demand for rare earths was boosted by the demand for rare earths in electric cars. The price of praseodymium and neodymium oxide rose from 26,000 yuan/ton in April 2020 to 111,100 yuan/ton in February 2022. This price increase cycle lasted for a long time, and subsequently, as the growth rate of electric vehicle production and sales slowed down, rare earth prices gradually fell. Looking back at 2024, affected by factors such as market environment, industry supply and demand cycles, in the first quarter, the prices of major rare earth products quickly fell, followed by the prices of rare earth products in the second and third quarters continued to fluctuate at low levels. In the fourth quarter, some rare earth product prices showed signs of improvement and rebound. As of December 31st, according to the data of China Rare Earth Resources and Technology Industry Association, the rare earth price index was 163.8 points, a decrease of 17.27% from the highest point of 198 points at the beginning of the year on January 2nd. In terms of the spot market, on December 31st, the average price of praseodymium and neodymium oxide was 39.8 yuan/kg, a decrease of 10.16% from the price of 44.3 yuan/kg at the beginning of the year (January 2nd). Affected by the fluctuating downward prices of rare earth products, the overall performance of Hong Kong-listed rare earth concept stocks in the first three quarters of 2024 was not good, with many companies experiencing a decline in revenue and profit. In the first three quarters of 2024, among the major rare earth giants, only Xiamen Tungsten (600549.SH) achieved positive growth in net profit, with a year-on-year increase of 20.78% to 1.402 billion yuan, while revenue declined by 10.70% year-on-year to 26.369 billion yuan. China Northern Rare Earth (00769, 000831.SZ), on the other hand, both saw a decline in revenue and profit, with revenue falling by 13.5% year-on-year to 21.56 billion yuan and net profit falling by 70.64% year-on-year to 405 million yuan. Among them, some of the rare earth concept stocks showed a trend of losses. In the first three quarters of 2024, Rising Nonferrous Metals Share and Inner Mongolia Baotou Steel Union recorded net losses of 276 million yuan and 516 million yuan respectively, with revenue declines of 43.85% and 6.94% respectively. In addition, the performance of the Hong Kong-listed rare earth concept stock Jl Mag Rare-Earth (06680) also showed a downward trend - in the first three quarters of 2024, the company's revenue fell by 0.72% year-on-year to 5.014 billion yuan, and net profit attributable to the parent company decreased by 60.17% to 197 million yuan. Overall, in 2024, the rare earth industry underwent continuous adjustment with significant impacts from supply and demand relationships and geopolitical factors. The slowdown in domestic rare earth mining quotas and reduced import volumes led to an overall tightening of supply. On the demand side, the growth rate in the mid-to-high-end applications area slowed down, and the market remained oversupplied, leading to narrow fluctuations in prices at low levels. These factors collectively influenced the performance of rare earth concept stocks. Rare earth demand continues to improve, and 2025 is expected to reshape a new cycle In the short term, the impact of supply and demand relationships and geopolitical factors has caused rare earth prices to fluctuate downward, resulting in a general decline in the performance of individual stocks. However, in the medium to long term, the vigorous development of strategic emerging industries and the continuous improvement in rare earth demand may help the industry reshape a new cycle. It is understood that permanent magnet materials are the most important and most promising downstream application field of rare earth. Downstream refined rare earth materials include permanent magnets, hydrogen storage, luminescence, polishing, catalytic materials, etc., among which permanent magnet materials are the most important and most promising downstream application field of rare earth. Among rare earth permanent magnet materials, neodymium iron boron permanent magnet materials are currently the most widely used, with the advantages of light weight, small size, high magnetic energy product, good mechanical properties, easy processing, high finished product rate, etc. High-performance neodymium iron boron permanent magnet materials are mainly used in wind power generators, energy-saving variable frequency air conditioners, energy-saving elevators, new energy vehicles, industrial Siasun Robot&Automation, etc. On the demand side, the rare earth industry chain demand side in areas such as new energy vehicles, wind power, home appliances, industrial Siasun Robot&Automation, etc. has a significant impact.There is hope for a recovery in the re-catalyzed situation.Specifically, with the rapid increase in sales of new energy vehicles and the continuous increase in CKH HOLDINGS penetration rate, the demand for drive motors represented by permanent magnet motors, one of the core components of new energy vehicles, will be boosted, thereby driving the growth in demand for rare earth permanent magnet materials. Siasun Robot&Automation, as a humanoid robot, has become a new development track and is expected to further open up long-term growth space for rare earth permanent magnet materials. In addition, in addition to the continuous growth in demand for new energy vehicles and industrial Siasun Robot&Automation, it is expected that the wind power industry's demand will see marginal improvement over the next 25 years. On the supply side, the growth rate of the total quantity control index for domestic rare earth mining has slowed down, and the increase in rare earth ore imports is difficult due to disturbances in imports from regions such as the United States and Myanmar, leading to a potential improvement in the supply surplus situation by 2025. In addition, the rare earth industry has also received policy assistance. On June 22, 2024, the State Council issued the "Regulations on the Management of Rare Earths," which will be implemented from October 1, 2024. The "Regulations" establish a governance system of hierarchical management from national to local levels to enterprises, with clear responsibilities and for the first time set penalties for illegal acts, further adding pressure on industry order rectification, and benefiting the standardized management of the rare earth industry. In this context, Guolian's estimates indicate that based on the calculations of high-performance neodymium iron boron for major application areas such as new energy vehicles, wind power, and industrial Siasun Robot&Automation, the global demand for high-performance neodymium iron boron is expected to reach 174,000 tons by 2024, an increase of 20,000 tons year-on-year. Among them, the demand for high-performance neodymium iron boron in other areas such as new energy vehicles/wind power/industrial Siasun Robot&Automation/variable frequency air conditioning/energy-saving elevators/consumer electronics is estimated to be 73,000/35,000/14,000/17,000/10,000/8,000 tons respectively. Furthermore, the institution forecasts that the global demand for praseodymium neodymium oxide from 2024 to 2026 will be 98,000/107,000/116,000 tons respectively; the global supply of praseodymium neodymium oxide is expected to be 103,000/107,000/111,000 tons respectively; the supply-demand gap is +54/+5/-45,000 tons respectively, and the supply-demand situation is expected to continue to improve in 2025-2026. Based on the above, with the bottoming out and continuous improvement in supply and demand, the rare earth industry may usher in a year of growth in 2025. Guotai Junan Securities pointed out that as the domestic rare earth quota shifts from a strong supply release cycle to a supply constraint scenario, coupled with overseas planning for increased output but slow actual release, the effectiveness of supply constraints is beginning to show. The continued growth in new energy vehicles and wind power demand, as well as the effective lift in equipment renewal demand for industrial motors in 2025-2026, may drive the demand curve, potentially making new energy the important source of demand growth for rare earths; coupled with the expansion of Siasun Robot&Automation applications, 2025 may once again usher in a year of growth for rare earth magnetic materials. Sinolink stated that since 2024, rare earth prices have experienced a bottoming out, with expectations of significant improvement in supply and demand and the catalytic effect of "supply-like reform" policies, commodity prices have risen by nearly 20% from the bottom, with the price center gradually rising; the implementation of the Rare Earth Management Regulations on October 1 will compress supply, with Q4 peak season orders gradually being fulfilled, combined with industry cost curve rising, supply disturbances frequent, it is expected that rare earth prices will continue to rise, and related concept stocks will have the opportunity to re-evaluate their values at the bottom and under the "supply-like reform" policy. Therefore, it is recommended to focus on China Northern Rare Earth (a leader in light rare earths) and Jl Mag Rare-Earth (a leader in high-end magnetic materials, with a layout in humanoid Siasun Robot&Automation) and other related stocks. "Things are easy to see from a distance." With the confirmation of the rare earth prosperity bottom in 2024, it is not difficult to see that in 2025, with the continuous improvement in rare earth demand and the ongoing supply-demand situation improvement, the rare earth sector may have the opportunity for value revaluation in 2025.