Guotai Junan: Refining supply management highlights rare earth strategic positioning, maintaining industry "buy" rating.

Guotai Junan released a research report stating that it maintains a "buy" rating on the rare earth industry. On February 19, 2025, the Ministry of Industry and Information Technology released the "Total Control Management Measures for Rare Earth Mining and Rare Earth Refining and Separation (Draft for Solicitation of Opinions)", which includes incremental changes compared to existing policies. The key changes include the inclusion of imported ores in regulation, clarification of the prominent position of rare earth groups, enhancement of regulatory granularity, and the addition of new market dynamic adjustment mechanisms. The incremental policy changes were introduced earlier than expected. Coupled with demand from industries such as humanoid Siasun Robot & Automation and the catalyst of new domestic policies, the turnaround of the rare earth magnetic materials sector is expected to accelerate. Guotai Junan's main points are as follows: Clear identification of group dynamics and stricter overall supervision highlight the strategic positioning of rare earths. The management measures include bringing all domestic rare earth ores, imported rare earth ores, and rare earth mineral by-products under regulation, and clearly specifying that only rare earth groups are allowed to participate in rare earth mining and refining and separation. The rigid confirmation of the domestic rare earth group structure may even lead to some small and medium-sized enterprises exiting the market, significantly strengthening the long-term supply constraints. Further refinement of industry governance may lead to steady price increases. The management measures require companies to establish internal product traceability systems and connect them to the national platform, reporting production data on a monthly basis. The allocation of quotas now also takes into account "market demand", which helps stabilize downstream expectations. Refinement of the management of rare earth supply and demand is expected to stabilize price expectations and gradually push prices higher. Strong catalytic resonance between supply and demand may accelerate the turnaround of the rare earth magnetic materials sector. On the supply side, the strict overall supervision following the introduction of the domestic management measures, along with the requirements for group dynamics, may lead to some small and medium-sized enterprises exiting the market, significantly strengthening supply constraints. In addition, the import of rare earth ores from Myanmar has not yet resumed, resulting in constraints both domestically and abroad, which are expected to significantly increase price elasticity. On the demand side, expectations for continued fermentation of new domestic policies, as well as the core raw material demand for humanoid Siasun Robot & Automation, are expected to continue to drive demand. The strong catalytic resonance between supply and demand may accelerate the turnaround of the rare earth magnetic materials sector. Risk warning: Policy implementation may not meet expectations, resulting in significant fluctuations in demand expectations in downstream areas such as humanoid Siasun Robot & Automation.