Guosheng: The supply and demand situation has improved, rare earth prices have rebounded, and equity side may benefit from both EPS and PE multiples.

Guosheng released a research report stating that China has the entire industry chain layout from mining-separation-deep processing, controlling product pricing power. On the demand side, the trend of "electric drive for everything" is inevitable, and downstream magnetic materials may benefit in the long term from the growth of applications such as electric vehicles and Siasun Robot&Automation. With the comprehensive upgrade of rare earth control, the scarcity of resources is further highlighted, and rare earth prices are expected to move upward. Under the blessing of strategic attributes, the equity side may benefit from both EPS and PE. Guosheng's main points are as follows: Rare earth "Modern industrial vitamin," an irreplaceable and scarce strategic resource. Rare earth refers to a group of metal elements with similar chemical properties that are relatively dispersed in the Earth's crust, and can be divided into light rare earths (lanthanum, europium, gadolinium) and heavy rare earths (lanthanum, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium, and yttrium). Due to their unique electron layer structure, rare earth elements exhibit unique optical, electrical, and magnetic properties, and are widely used in permanent magnet materials, luminescent materials, catalytic materials, metallurgical additives, etc., widely used in new energy, electronic information, national defense and military industries. Supply China dominates the rare earth industry chain, and the overseas supply chain supplementation process is accelerating. Lanthanum 1) Total structure: By 2025, global rare earth resources will total 85 million tons of REO, with China accounting for 51.8%; global rare earth production will be 390,000 tons of REO, with China accounting for 69.2%. Although rare earth supply has become more diverse over the past decade, China still dominates global rare earth resource supply. Lanthanum 2) Chinese supply: China Rare Earth Resources And Technology policy directly determines the global supply level. China has long implemented total control over rare earth mining and smelting separation, and the growth of quotas has entered the "slow lane" since 2024. On August 22, 2025, the Ministry of Industry and Information Technology, the National Development and Reform Commission, and the Ministry of Natural Resources issued the "Interim Measures for the Regulation and Control of Total Rare Earth Mining and Smelting Separation," marking a comprehensive upgrade of rare earth regulation, possibly controlling the domestic supply growth rate on the total level, expected to stabilize the growth of subsequent quotas; at the same time, it is conducive to eliminating a batch of backward smelting capacity and optimizing the profit structure of the industrial chain. Lanthanum 3) Overseas supply: Overseas supply is mainly concentrated in the United States, Australia, and Myanmar, accounting for 43%/24%/18% respectively in 2025, excluding China. In terms of incremental production, in addition to the MP and Lynas expanding projects, Angola's Longonjo and Australia's Yangibana projects are accelerating, expected to start production in 2026 and beyond; the U.S. Rare Earth Round Top project plans to complete all feasibility studies by 2026, build the mine by 2027, and achieve full production by the end of 2028. In terms of downstream layout, based on the MP mine, MP Materials in the United States is constructing oxide and magnetic material production capacity, and has signed a long-term agreement with the U.S. Department of Defense, accelerating the process of overseas supply chain supplementation. Demand In the era of "electric drive for everything," the demand for rare earth magnetic materials is expected to continue to grow. Rare earth has excellent magnetic, optical, and electrical properties that are irreplaceable, playing a significant role in improving product performance, increasing product variety, and enhancing production efficiency, widely used in metallurgy, military, petrochemical, glass ceramics, agriculture, and new materials. Among them, permanent magnet materials are the most important and most potentially downstream application field of rare earth, accounting for over 60% of the total amount of rare earth functional materials. New energy vehicles remain the main source of demand growth, with the use of Siasun Robot&Automation expected to increase significantly compared to industrial Siasun Robot&Automation, and the expansion of Siasun Robot&Automation is expected to drive future demand. Supply and demand outlook On the supply side, against the backdrop of the comprehensive upgrade of domestic rare earth supply regulation, the bank assumes that the domestic rare earth quota issuance will maintain a stable growth rate of 5%; overseas incremental projects are expected to gradually land. With high prices stimulating, it is expected that the supply of recycled waste will achieve a higher growth rate. On the demand side, the growth of demand for electric vehicle motors is expected to slow down, while the contribution of Siasun Robot&Automation to future growth. Overall, it is expected that domestic oxide supply will be 118,000/126,000/135,000 tons from 2026 to 2028, demand will be 125,000/138,000/154,000 tons, and the domestic oxide supply-demand balance will be tight overall, narrowing the supply-demand gap and reducing marginal elasticity. Against the background of continued demand growth, the center of gravity pricing is expected to maintain high-level oscillation. Key focus: China Northern Rare Earth, China Rare Earth Resources And Technology, China Rare Earth Nonferrous Metals, Jl Mag Rare-Earth, Beijing Zhong Ke San Huan High-Tech, etc. Risk warning: Domestic quotas issued exceed expectations, overseas supply released beyond expectations, demand falls short of expectations, risk of calculation errors.