Baotou Iron and Steel Co., Ltd. Rare earth concentrate selling price and trading volume are both improved to drive performance release [institutional review]

Baotou Iron and Steel Co., Ltd. (600010)

Summary of events: on January 7, the company issued an announcement: the company renewed the rare earth concentrate supply contract with northern rare earths, proposing that from January 1, 2022, the sales price of rare earth concentrates of both sides will be adjusted to 26887.20 yuan per ton without tax (dry volume, 1% increase or decrease in REO=51%), REO, 527.2 yuan per ton (dry volume), and the total trading volume of rare earth concentrates in 2022 will not exceed 230000 tons (dry volume, REO=50%).

Analysis and judgment:

Price: the benchmark price of rare earth concentrate has increased significantly by 65.27% compared with the same period in 2021. The contract stipulates that from January 1, 2022, the sales price of rare earth concentrate will be adjusted to 26887.20 yuan per ton excluding tax, a year-on-year increase of 65.27%. For every 1% increase or decrease in REO, the price excluding tax will increase or decrease by 527.2 yuan / ton, + 65.27% over the same period last year. Rare earth downstream magnetic materials and other development prospects, rare earth prices rose sharply, including rare earth concentrate 2021 year-on-year average price + 98.32%, praseodymium-neodymium metal 2021 average price + 86.87% year-on-year. The company's rare earth sales price is expected to rise for a long time.

Volume: the total volume of rare earth concentrate trading in 2022 was 230000 tons, + 27.78% compared with the same period last year. The contract stipulates that the total trading volume of rare earth concentrates in 2022 will not exceed 230000 tons, which is no more than 180000 tons agreed in the 2021 contract, and an increase of 27.78 percent over the same period last year. In the first half of 2021, the company produced 87000 tons of rare earth concentrate, sold 75400 tons, and the gross profit of rare earth plate was as high as 1.093 billion yuan. The total trading volume and selling prices of rare earth concentrates agreed with northern rare earths in 2022 have both increased, and the profit contribution of the company's rare earth sector will be more prominent.

The company's rare earth oxide reserves of 13.82 million tons, rare earth concentrate production capacity of 450000 tons, rare earth plate long-term prospects. Baiyun Obo Mine, owned by Baotou Iron and Steel Group, the controlling shareholder, is a world-famous treasure house of resources, with proven rare earth oxide reserves of 35 million tons, ranking first in the world. Bayan Obo mine tailings reservoir reserves of 200 million tons, rare earth oxide reserves of about 13.82 million tons, the company's rare earth concentrate production capacity of 450000 tons. Rare earths continue to have high bearing, the price center of gravity of rare earths is gradually rising, and the long-term prospects of rare earth plates are broad.

Under the background of "carbon peak, carbon neutralization", the profitability of the company's steel plate has been greatly improved. The company has "board, pipe, rail, line" four boutique production lines. The company has an iron and steel production capacity of 17.5 million tons and has formed a production pattern of four fine lines of "board, tube, rail and line". With CSP, wide and thick plate production capacity of 9.7 million tons, is the largest plate production base in northwest China. With two advanced universal rolling mill high-speed rail production lines with an annual production capacity of 2.1 million tons, it is the highest-equipped and most capable high-speed rail production base in the world. With 5 seamless pipe production lines and an annual production capacity of 1.8 million tons, it is the seamless pipe production base with the most complete varieties and specifications in China. The company has a strong guarantee of iron and steel raw materials. Baotou Iron and Steel Group, the controlling shareholder, has proven iron ore reserves of 1.4 billion tons, and the company has a coke production capacity of 8 million tons, which provides protection for blast furnace raw materials. Under the background of "carbon peak and carbon neutralization", the center of gravity of steel prices is expected to rise gradually and continue to thicken the performance of the company's steel plate.

Investment advice: rare earth plate development prospects, "carbon peak, carbon neutralization" background, iron and steel plate profit improvement. We estimate that the company's net profit from 2021 to 2023 will be 56.110.32 / 8.25 billion yuan, corresponding to the closing price of 2.79 yuan on January 7, 2022, and the PE for 2021-2023 will be multiple of 23-18-15, covering the company for the first time and giving the company a "recommended" rating.

Risk tips: the price of raw materials is rising rapidly; downstream demand is not up to expectations; macro risks and so on.