Industrial: AIDC liquid cooling permeability improvement - core component suppliers are expected to benefit.

Industrial released a research report stating that by 2025, the global reserves of rare earth elements (REE) will be approximately 8.5 million tons, with production nearing 390,000 tons of REE. China, Brazil, Australia, Vietnam, Russia, the United States, and others all have considerable resource bases. However, turning rare earth mines from resources into usable supplies involves several processes, including mining and selection, hydrometallurgy, smelting and separation, environmental management, and customer certification, thus "having mines" does not equate to "having supplies." Export controls and slow overseas supply chain supplementation have maintained high price differentials both domestically and internationally, prompting a reevaluation of the value of midstream bottleneck assets in the China Rare Earth Resources and Technology industry chain. Industrial's main points are as follows: Raw materials: The raw materials of China Rare Earth Resources and Technology are showing a tightening across the board, with limited overseas supply expected to increase by 2027. Domestic raw ore is constrained by quotas, with a rare earth mining quota of 270,000 tons of REE in China in 2024, a year-on-year increase of 6%, but the increase is mainly concentrated in light rare earths, while the quota for medium and heavy rare earths remains at only 19,200 tons with no increase for several years; the smelting and separation quota is 254,000 tons, a year-on-year increase of 4%. On the import side, China is expected to import approximately 54,800 tons of rare earth raw materials in the first half of 2026, a year-on-year increase of 2%, including approximately 29,500 tons of unlisted rare earth oxides, accounting for 54%, mainly from Myanmar and Laos; approximately 22,200 tons of monazite, accounting for 40%; and about 3,100 tons of rare earth metal ores, with the share dropping to 6%, and imports from the United States falling to zero. In terms of recycling, the output of recycled oxides is expected to be around 3,631 tons in June 2026, a decline of 19.5% month-on-month, as tax compliance and new national standards weaken short-term supply elasticity. Although overseas mines are accelerating, most are still in the DFS, financing, permitting, or construction ramp-up stages, with products primarily consisting of concentrates, MREC, or monazite concentrates. Smelting and separation: China's dominant position is solidified, with overseas light rare earth supply chain supplementation accelerating, while breakthroughs in heavy rare earths are still awaited. Current overseas projects include Lynas Malaysia, MP Materials Mountain Pass, Energy Fuels White Mesa, Solvay La Rochelle, Neo Silmet, among others, but their scales are limited, and medium and heavy rare earth production primarily remains at small-scale production stages. As for planned projects, the smelting and separation projects of Eneabba, Caremag, Ucore Louisiana, SRC, Aclara, Arafura, etc., are mainly scheduled to enter production between 2027 and 2029, making it difficult to replace China in the short term. In terms of medium and heavy rare earths, there are few overseas projects with actual experience and commercialization basis for heavy rare earth separation, with Lynas Malaysia being one of the few outside China that has entered actual production. From the perspective of planned projects, the new capacity for heavy rare earth separation overseas has accelerated significantly, with Iluka Eneabba planning to produce about 750 tons/year of Dy/Tb oxides, expected to begin commissioning in mid-2027; the Caremag project plans to produce about 500 tons of dysprosium oxide and 100 tons of terbium oxide annually and is tied to Japanese industrial capital, aiming to serve the supply chain for magnets in Europe and Japan; Ucore Louisiana SMC, Aclara Project Dynamo, and Arafura Nolans also plan certain capacities for heavy rare earth separation or medium and heavy rare earth products; overall, the overseas layout for heavy rare earth separation has clearly accelerated, but it still faces constraints from the stability of raw material supply and the complexity of separation processes, making it difficult to change China's dominant position in the short term. Export controls and domestic and international price differentials further reinforce the reevaluation of the rare earth industry chain's value. China has imposed export controls on related items such as samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. High-performance NdFeB magnets containing dysprosium and terbium have also been included in the control scope. From a price perspective, on July 22, 2026, the price of neodymium oxide in China is about 805,000 RMB/ton; considering VAT, the FOB price is about 1,374,000 RMB/ton, and the CIF price to Rotterdam is approximately 1,996,000 RMB/ton; the price of dysprosium oxide domestically is about 1,415 RMB/kg, with an FOB price of approximately 2,341 RMB/kg; the price of terbium oxide is around 6,825 RMB/kg domestically, with an FOB price of about 9,725 RMB/kg, indicating a significant security premium for the overseas supply chain. Risk warning: There are risks of significant price volatility in rare earths, risks from policy execution and changes in export controls, risks related to overseas project construction and production capacity not meeting expectations, and risks from downstream magnetic material demand and technological substitution, etc.