The breakthrough of rare earths starts from "new" and has three meanings: firstly, the breakthrough starts from now on. After a long-term decline, the price of rare earths has deviated significantly from its value, and its strategic value and sustained incremental demand in high-tech fields have not been reasonably priced by the market; Secondly, upstream rare earth resource companies will enter high value-added new consumption and new technology fields as a breakthrough direction, and their value will be re evaluated; Thirdly, as the integration of the six major rare earth groups gradually comes to an end, the capital operation mode of the rare earth industry through mergers and acquisitions to connect the upstream and downstream of the industrial chain will become the norm. Pay attention to the allocation opportunities in the rare earth industry.

Main content:

1. In the name of the national treasury, tell the beauty of rare earth jade leaves, gold and bronze. China's rare earth industry ranks fourth in the world in terms of resource reserves, production, exports, and consumption. Due to the pivotal position of rare earths in the industrial and new materials fields, countries consider them as a strategic reserve resource. After the cancellation of the rare earth quota system and rare earth tariffs in 2015, the rare earth industry entered a new competitive landscape, facing several major challenges:

(1) China, with 42% of its resource reserves, provides up to 85% of its resource supply.

(2) In the era of quota system, black industry chains are rampant, and in the era of marketization, supervision is forced to increase. After the cancellation of the quota system, the number of export enterprises increased from over 20 to over 70.

(3) Rare earth exports are experiencing an increase in quantity and a decrease in price, and enterprises are generally facing a "cold" year. The export volume increased from 16300 tons in 2012 to 34800 tons in 2015, while the average export price decreased from 557000 US dollars/ton to 81800 US dollars/ton, a decrease of 85.41%. (4) The smelting separation technology has reached the national level, but the application of rare earth new materials is lagging behind.

2. Taking history as a guide, analyze the internal factors of rare earth price fluctuations. Periodic fluctuations are due to policy games and weak supply-demand balance:

(1) The determining factors of rare earth prices are more from the supply side rather than the demand side, and the crux of the weak supply-demand balance lies in the difficulty of removing the "black soil";

(2) Previous rebounds in rare earth prices were due to expectations of policies, but prices weakened again after policies did not meet expectations;

(3) The supply of black soil follows the market trend and changes inversely with rare earth prices. After a long-term decline, rare earth prices have deviated significantly from their value: (1) Since 2011, rare earth prices have fallen by over 80%, far exceeding other metals; (2) The strategic significance, high-tech, and long-term demand in the military industry of rare earths ensure their intrinsic value; (3) After a long-term decline, it is no longer possible to cover costs; (4) The new impetus of supply side reform and the incremental value brought by transformation and upgrading.

3. Driven by policies, give priority to advocating for supply side reform. (1) The price of rare earths is mainly affected by supply. With the wind of supply side reform and the expectation of a new round of rare earth storage, as well as considering factors such as the slowdown of production capacity release by foreign rare earth enterprises, the supply and demand are expected to improve, which is conducive to price recovery. (2) After the completion of the formation of the six major rare earth groups, the concentration of the industry has increased, making it more transparent and compressing the survival space of the black industry chain. We believe that the anti black effect of this round will exceed previous ones.

(3) The prelude to mergers and acquisitions in the rare earth industry chain has begun, with integration and transformation upgrading being the focus beyond price.

4. Focusing on high value-added applications with innovation as the goal. (1) The overall level of China's rare earth industry is at the mid to low end, with overcapacity in mining and separation, insufficient application, and low added value of products; During the 13th Five Year Plan period, the rare earth industry will enter a development stage dominated by application and high added value. (2) Driven by new consumption and new technology, the prosperity of permanent magnet materials continues. Permanent magnet materials account for 42% of China's rare earth consumption, and the export of neodymium iron boron alloy magnetic powder is still in high demand. Its price has fallen by 76% from 2011 to present, which is less than the decline of 82.5% for neodymium oxide and 79.5% for praseodymium neodymium oxide.

The new energy vehicles and wind power sectors will be the main sources of new demand for neodymium iron boron permanent magnet materials.