CMSC: China Rare Earth Resources And Technology export controls upgraded, future prices to move upward.

CMSC released a research report stating that after the implementation of export control by China Rare Earth Resources And Technology, the short-term overseas market will face a scramble for resources, causing a significant increase in overseas rare earth prices. On the other hand, domestic rare earth deep processing enterprises are presented with development opportunities. As some of the processed rare earth products are not within the scope of this export control, the profit margins of businesses expand, thereby driving up domestic rare earth prices. In the future, the central prices of rare earths both domestically and abroad are expected to rise, with short-term overseas rare earth prices projected to be higher than domestic ones, and mid-term prices expected to converge, leading to a continuous overall rise in central prices. Key points by CMSC: China has implemented rare earth export controls, and overseas dependence on China is high On April 7, 2025, the Chinese Ministry of Commerce announced export controls on certain rare earth products (scandium, gadolinium, terbium, dysprosium, lutetium, yttrium, and related metal items) in response to the new tariff measures imposed by the US. China had already implemented a rare earth export quota system as early as 1990, but in response to a WTO ruling, export controls were lifted in 2015. Rare earths, as core materials for new energy, high technology, and military industries, are expected to increase China's strategic control power in global industrial chains through this control. In 2024, China Rare Earth Resources And Technology accounted for 68.57% of global production and 39.21% of reserves, with a significant dominant position in supply, leading to high global dependence on China Rare Earth Resources And Technology. The export control policy is expected to create a supply gap overseas, strengthening China's pricing power in the rare earth sector. Slowdown in rare earth quota growth rate, concentration of supply between two giants In the 2024 rare earth production quota, the total control indicators for rare earth mining and smelting separation were 270,000 tons and 254,000 tons, representing an increase of 5.88% and 4.16% respectively compared to the full-year quotas for 2023. In comparison, the full-year quotas for rare earth mining and smelting separation in 2023 increased by 21.43% and 20.72% respectively, showing a significant slowdown in growth rate for 2024. All the quotas were allocated to China Rare Earth Resources And Technology Group and China Northern Rare Earth Group, accounting for 24%/76% and 100%/0% of the light and heavy rare earth quotas, respectively, forming a duopoly situation dominated by these two enterprises. With downstream demand expected to continue growing in 2025, if the rare earth quota growth rate remains at the 2024 level, it is likely to drive up rare earth prices. Profit for domestic rare earth deep processing enterprises, domestic and overseas rare earth prices may rise CMSC believes that in the short term, overseas markets will face a scramble for resources after the implementation of export controls, leading to a significant increase in overseas rare earth prices. On the other hand, domestic rare earth deep processing enterprises will see development opportunities. As some of the processed rare earth products are not within the scope of this export control, the profit margins of businesses expand, thereby driving up domestic rare earth prices. Overall, it is expected that the central prices of rare earths both domestically and abroad will rise, with short-term overseas rare earth prices projected to be higher than domestic ones, and mid-term prices expected to converge, leading to a continuous overall rise in central prices. Investment recommendations It is expected that under export controls, short-term market prices for praseodymium-neodymium oxide may hit 600,000 RMB/ton (domestic) and 800,000 RMB/ton (international), and the long-term central prices are expected to continue rising. Recommended targets to watch 1) Rare earths: China Rare Earth Resources And Technology (000831.SZ), China Northern Rare Earth (600111.SH), Shenghe Resources Holding (600392.SH), Inner Mongolia BaoTou Steel Union (600010.SH), Rising Nonferrous Metals Share (600259.SH), etc.; 2) Magnetic materials: Jl Mag Rare-Earth (300748.SZ), Yantai Zhenghai Magnetic Material (300224.SZ), Ningbo Yunsheng (600366.SH), Beijing Zhong Ke San Huan High-Tech (000970.SZ), Chengdu Galaxy Magnets (300127.SZ), etc. Risk warnings Risk of raw material price fluctuations, unforeseen macroeconomic policies, overseas geopolitical risks.