Orient: Global Excess Reserves Open, Rare Earth Prices Space Opened

Orient released a research report stating that the domestic rare earth total quantity control management policy is gradually being implemented, and the rare earth quota has shown a trend of slowing down in recent years, indicating a bullish outlook for the upward movement of rare earth prices. The bank believes that against the backdrop of increasing global geopolitical uncertainties, as one of the most advantageous strategic industries in China, rare earths are expected to continue to play a strategic value, and the rare earth sector's profitability and valuation are expected to receive a double boost. Orient's main points are as follows: Global rare earth supply is moving towards "locking", with significant strengthening of supply rigidity In terms of domestic factors, after the Ministry of Industry and Information Technology issued the "Interim Measures for Total Control of Rare Earth Mining and Rare Earth Smelting and Separation Management" on July 28, by December 2025, domestic production of praseodymium-neodymium oxide has continued to decline to 7,894 tons, a 15% decrease from September's production. With the implementation of control policies, the supply contraction effect is evident. On the overseas front, there are many rare earth mining projects with some exploration results emerging (with a planned total production capacity of about 53,000 tons of REO/year), but progress is generally slow. Additionally, countries like the United States, Japan, and Australia are gradually forming various rare earth industrial chain cooperation and development models, signaling that future increases in overseas rare earth resources are likely to be locked in. In the long term, the rigidity of global rare earth supply will significantly strengthen. Geopolitical risks intensify, Chinese export controls stimulate global excess stockpiles Since April 2025, when China began to implement export controls on medium and heavy rare earths, the prices of heavy rare earths overseas have surged, widening the price difference between domestic and foreign markets rapidly. This price difference is essentially a premium paid for "supply chain security" and "supply assurance." Considering the rigid demand in overseas defense industries and other sectors, in response to China's control policies, major consumer bodies such as the United States, Australia, and the European Union are actively promoting the establishment of strategic reserves and joint procurement mechanisms, introducing measures such as price floors and commercial reserves, in addition to the industrial "reserve" demand brought about by the imminent mass production of Siasun Robot & Automation, overseas "reverse stocking" may gradually begin. The bank estimates that the total annual export volume of China Rare Earth Resources And Technology magnetics in 2025 is approximately 59,600 tons, up by 2% year-on-year, with an export volume of 35,500 tons from July to December, up by 16% year-on-year. This indicates that as China's export control policy is normalized, the demand for overseas reverse stocking is continuing to be transmitted to the domestic market. Excess stockpiling opens up price space, further bullish on rare earth sector profitability and valuation On the supply side, the domestic rare earth total quantity control management policy is gradually being implemented, and the rare earth quotas have shown a trend of slowing down in recent years, while overseas countries, although showing a strong willingness to build their own rare earth supply chains, are progressing slowly. Moreover, the capacity expansion is generally concentrated in countries like the United States, Japan, and Europe, indicating that future supply increases both domestically and abroad are tending to be "locked in", reinforcing the rigidity of future supply; on the demand side, after China implemented export controls, the prices of rare earths overseas have risen sharply, considering that the rigid demand from overseas end-users (especially in the defense sector) is difficult to meet, their willingness to hold excess reserves is significantly enhanced. Currently, overseas has introduced mechanisms such as minimum prices for rare earths/commercial reserves, and in the future, the "reverse stocking" of rare earths will continue. This can be transmitted to the domestic market through the export of rare earth magnetic materials, indicating a bullish outlook for the upward movement of rare earth prices. The bank believes that against the backdrop of increasing global geopolitical uncertainties, as one of the most advantageous strategic industries in China, rare earths are expected to continue to play a strategic value, and the profitability and valuation of the rare earth sector are expected to receive a double boost. Investment recommendations and investment targets Relevant targets: China Rare Earth Resources And Technology, China Northern Rare Earth, China Rare Earth Nonferrous Metals, Shenghe Resources Holding, Inner Mongolia BaoTou Steel Union, Jl Mag Rare-Earth, Yantai Zhenghai Magnetic Material, Beijing Zhong Ke San Huan High-Tech, Ningbo Yunsheng. Risk warning Downstream demand falls short of expectations, overseas rare earth supply exceeds expectations, technological risks, changes in assumptions affecting calculation results.