Image source: UI gallery

Interface News reporter Tian Heqi

After nearly five months, the rare earth industry will usher in a blockbuster new regulation.

On the evening of February 19, the Ministry of Industry and Information Technology issued the "Administrative Measures for the Regulation and Control of the Total Volume of Rare Earth Mining and Rare Earth Smelting and Separation (Provisional) (Draft for Public Comment)" (hereinafter referred to as the "Draft for Comments") and the "Measures for the Management of Information Traceability of Rare Earth Products (Provisional) (Draft for Public Comment)" (hereinafter referred to as the "Draft for Information Retrospective Comments") to solicit opinions from the public, and the deadline for feedback is March 21.

According to the Ministry of Industry and Information Technology, the release of the draft of the new regulations aims to implement the "Regulations on the Administration of Rare Earths", effectively protect and rationally develop and utilize rare earth resources, maintain ecological security, and promote the high-quality development of the rare earth industry.

On February 20 and 21, the rare earth sector continued to strengthen. As of the close of trading on the 21st, INVT (002334.SZ) closed up 10.05%, Ningbo Yunsheng (600366.SH) closed up 5.02%, Jiaozuo Wanfang (000612.SZ), Longci Technology (300835.SZ), Fangbang (688020.SH), and Aluminum Corporation of China (601600.SH) all rose more than 2%.

The two drafts further strengthen the control of the supply side of the rare earth industry from the aspects of total regulation and information traceability.

Among them, the "Draft for Comments on Total Volume Control" clarifies that rare earth mining enterprises and rare earth smelting and separation enterprises shall be large-scale rare earth enterprise groups and their affiliated rare earth mining enterprises and rare earth smelting and separation enterprises promoted by the state, and other organizations and individuals shall not obtain rare earth indicators. Organizations and individuals that have not obtained rare earth indicators shall not carry out rare earth mining, smelting and separation production activities.

It is generally believed in the industry that the "large rare earth enterprise group" mentioned here mainly refers to China Rare Earth Group and Northern Rare Earth (600111.SH).

China Rare Earth Group was established in Ganzhou City, Jiangxi Province on December 23, 2021, which is a reorganization and integration of rare earth assets belonging to Aluminum Corporation of China, China Minmetals Corporation and Ganzhou Rare Earth Group Co., Ltd., and the introduction of China Iron and Steel Research Institute Technology Group Co., Ltd. and China Research Institute Technology Group Co., Ltd. Two science and technology enterprises, are equity diversification central enterprises directly supervised by the State-owned Assets Supervision and Administration Commission of the State Council. 000831.SZ)。

Founded in 1961, Northern Rare Earth is a holding subsidiary of Baotou Iron and Steel Group and the origin of China's rare earth industry. In 1997, the company was listed on the Shanghai Stock Exchange and was hailed as "the first rare earth stock in China". In 2015, it took the lead in completing the establishment of a large rare earth group to realize the centralized and unified management of light rare earth resources in the north.

Relying on the unique resource advantages of Baiyun Obo Mine, Northern Rare Earth has established the world's largest rare earth raw material production base and rare earth functional materials manufacturing base.

In addition to the above two groups, there are also rare earth companies such as Guangdong Rare Earth Industry Group, Xiamen Tungsten Industry (600549.SH), and Shenghe Resources (600392.SH).

According to Jiemian News, when the second batch of rare earth mining, smelting and separation total control indicators are issued in 2023, in addition to China Rare Earth Group and Northern Rare Earth, Xiamen Tungsten Industry and Guangdong Rare Earth Industry Group will also obtain indicators. However, since the Ministry of Industry and Information Technology disclosed the third batch of indicators in December 2023, only China Rare Earth Group and Northern Rare Earth have obtained indicators.

In September 2023, Xiamen Tungsten announced that the company and China Rare Earth Group plan to establish two joint ventures, with China Rare Earth Group holding 51% of the shares and Xiamen Tungsten holding 49% of the shares, to jointly operate rare earth mines and rare earth smelting and separation industries controlled by Xiamen Tungsten.

At the beginning of 2024, Rising Nonferrous Metals (600259.SH), a listed company under Guangdong Rare Earth Industry Group, announced that Rising Group and China Rare Earth Group signed an equity transfer agreement free of charge, transferring 100% of the equity of its directly held subsidiary Guangdong Rare Earth Industry Group to China Rare Earth Group free of charge.

After the completion of this transaction, the controlling shareholder of Rising Nonferrous Metals will still be Guangdong Rare Earth Industry Group, and the actual controller will be changed from Guangdong State-owned Assets Supervision and Administration Commission to China Rare Earth Group.

It can be seen that Rising Nonferrous Metals and Xiamen Tungsten Industry are integrated into the China Rare Earth Group system through equity transfer and joint ventures, and their mining and smelting indicators will be obtained through internal allocation of the group. Therefore, after the implementation of the above policies, the impact on the two companies is small.

The sources of rare earths of Shenghe Resources mainly include three aspects. First, domestic mining resources. The company owns the mining rights of rare earth ore in Dechang continental trough in Sichuan, and participates in Mianning Mianli Rare Earth Mineral Processing Co., Ltd. and Shandong Iron and Steel Research Institute Chalco Rare Earth Technology Co., Ltd.

The second is overseas mine resources. The company became the largest shareholder of Energy Transition Minerals Ltd. (ETM) in Australia. Invested in MP Materials Corp. (MP) in the United States and exclusively underwrote its major rare earth products such as rare earth concentrates. Acquired a 19.9% stake in Peak in Australia.

The third is the recycling of rare earth waste. The company's subordinate Ganzhou Bulai Terbium New Resources Co., Ltd. specializes in the recycling of rare earth NdFeB and phosphor waste, with more than 30 patented technologies and an annual processing of about 6,000 tons of rare earth waste.

Unlike other leading companies, Shenghe Resources' strategic focus has long been biased towards overseas. According to a previous article issued by the Yuanchuan Research Institute, about 80% of Shenghe Resources' rare earth minerals come from overseas.

It is worth noting that the rare earth resources that the company has obtained from overseas in the past are not within the scope of the domestic "target", so it can flexibly handle its overseas resources.

However, for the first time, the draft for comments includes imported rare earth ores and monazite in the management of smelting and separation indicators.

This also means that after the implementation of the above policies, the imported mines of Shenghe Resources will also be included in the control, which will have a greater impact on its overall situation.

The Draft for Comments on Total Volume Control defines the scope of ore sources for rare earth smelting and separation as rare earth mineral products obtained from domestic mining and selection, rare earth mineral products imported from abroad, monazite concentrate and other rare earth mineral products obtained through other by-products of rare earth minerals.

According to the General Administration of Customs, China will import 133,000 tons of rare earths in 2024. According to Baichuan Yingfu's calculations, in 2024, China's monazite will be converted into REO (rare earth oxide) of about 25,000 tons, and the global rare earth production in 2024 will be about 466,000 tons of REO, so it is calculated that China's imported ores and monazite will contribute 34% to the global rare earth supply.

Yuan Chenghui, a rare earth analyst at ferroalloy online, told Jiemian News that the draft further clarifies the specific concept and product scope of rare earth minerals, which will help standardize the market and ensure the rational development and utilization of rare earth resources.

She also said that the inclusion of imported ores in the unified regulation and control of rare earth resources can enhance the country's right to speak on the one hand, and at the same time avoid the chaos of the domestic market caused by the blind import of foreign rare earth resources.

"The new draft is actually a further refinement of the previous Regulations on the Administration of Rare Earths (hereinafter referred to as the "Regulations"). Yuan Cheng will think.

A person from a listed company in the rare earth industry also told Jiemian News that the new regulations are another important document second only to the "Regulations", especially for the large-scale rare earth groups established by the state, which is a major benefit. There is no direct impact on the export of rare earth products.

On October 1 last year, the "Regulations" were officially put into effect. The Regulations are the first time in China to regulate the development and utilization of rare earth resources in the form of administrative legislation. It makes it clear that rare earth resources belong to the state, and no organization or individual may encroach on or destroy rare earth resources, and the state implements protective mining of rare earth resources.

Yang Jiawen, a rare earth analyst at Shanghai Nonferrous Metals Network, also issued an article saying that the clear participants aim to protect rare earth resources, prevent excessive and illegal mining, avoid excessive consumption of resources, and promote the sustainable use of rare earth resources.

"In the past, due to insufficient supervision, some companies mined rare earths in a disorderly manner, resulting in waste of resources and damage to the ecological environment. By introducing total volume control measures, the amount of resource extraction can be reasonably planned to ensure that sufficient resource reserves are retained for future development on the basis of meeting current demand. She said.

At the same time, the "Draft Information Traceability for Comments" requires rare earth enterprises to establish a product flow record system, record the circulation information of rare earth products in detail, and enter the relevant data into the traceability system before the 10th of each month.

According to the draft, the rare earth product traceability code will be applied through the rare earth traceability system, and the traceability label will be applied to each single sales unit product to realize the traceability of rare earth products "one thing and one code". The basic indicators of the traceability code include product name, specification, weight, etc.

The "rare earth product information traceability management" here refers to the use of rare earth product traceability information system to record the flow information of rare earth products production, circulation, use and other links, so as to meet the needs of industry management and legal operation of enterprises.

Yuan Chenghui pointed out that in the past, some large rare earth enterprises have been promoting rare earth traceability work and giving traceability codes to products. With the issuance of the draft for comments, the original traceability system will be further improved and become more reasonable and compliant.

Yang Jiawen said that driven by the total control policy, enterprises will face more stringent production indicators, which requires them to no longer rely on traditional extensive production expansion, but need to increase investment in technological innovation and resource efficiency.

Therefore, in order to achieve higher economic benefits under limited indicators, enterprises should actively develop new processes and technologies, improve the added value of rare earth products, promote industrial upgrading, and move from low-end to high-end.

For the rare earth market outlook, Shanghai Nonferrous Metals Network pointed out that the two documents are still in the stage of public consultation, and it is expected that the final draft may be adjusted, but the overall will promote the high-quality development of the rare earth industry. In the future, it is necessary to pay attention to the announcement of specific rare earth mining indicators and the release of terminal order demand.

At the same time, driven by the increase in supply control and the explosion of high-end demand, the strategic value of the rare earth permanent magnet sector continues to be highlighted.

Rare earth permanent magnet material is an application product of rare earth. It is a magnetic material prepared by alloying rare earth metals such as samarium and neodymium with transition metals (such as cobalt, iron, etc.) by powder metallurgy method after pressing and sintering and magnetizing.

Rare earth permanent magnet materials are mainly divided into samarium cobalt permanent magnets and NdFeB permanent magnets. These materials are widely used in many fields such as new energy vehicles, wind power generation, consumer electronics, and robotics.

Guojin Securities believes that after the implementation of the "total regulation and control management measures" will open the prelude to the supply reform of the rare earth industry, followed by a series of policies and industry integration, in the context of fluctuations in the global geopolitical environment, the strategic value of rare earth is expected to be further enhanced, and the fundamentals of the industry are also in the bottom recovery stage, and the rare earth group and the magnetic material target that cuts into the humanoid robot industry chain is expected to benefit significantly.

Guotai Junan said that in recent years, Myanmar's rare earth production has grown rapidly and has become China's largest source of imports, but subject to political turmoil, resource endowment overdraft risk, supply or form a strong constraint, and the demand side of the domestic "two new" policy to strengthen the terminal business cycle, rare earth prices are expected to rise steadily, the second stage of the rare earth plate reversal or gradually open.