The first batch of rare earth indicators issued in 2022: weak cycle strong growth industry reshaping [institutional review]

Event: the Ministry of Industry and Information Technology and the Ministry of Natural Resources issued the first batch of rare earth total index control plan in 2022. Rare earths are products managed by the state under total production control. No unit or individual may produce without or exceeding the target. The total amount control targets of the first batch of rare earth mining and smelting separation in 2022 are 100800 tons and 97200 tons respectively.

In terms of total amount, the index of rare earths increased in an orderly manner, and the tight supply and demand pattern remained unchanged. This index control plan continues the previous policy thinking, with the first batch of targets increasing by 16800 tons of REO (yoy+20%) in 2022 compared with the same period last year, of which all the increments are light rare earths and no growth in medium and heavy rare earths. If the index of rare earths in China in the second half of the year is the same as that in the first half of the year (according to historical experience, it is generally the same in the last half of the year), and considering that the supply of overseas mines has peaked, we can clearly see that in order to match demand, the domestic rare earths are growing in an orderly manner, while the overall global supply and demand pattern of rare earths may not change

From the structural point of view, the index is more inclined to the northern rare earths. Northern rare earths still account for almost all the incremental indicators, with an increase of about 16100 tons of REO (yoy+36%) compared with the same period last year, accounting for 96 per cent of the new indicators, in line with the trend of target distribution in the second half of 21, with the proportion of northern rare earths rising from 53 per cent to 60 per cent. Considering resource endowment, production capacity, environmental protection and other factors, rare earths in the north may become the main supply growth source of rare earths in the next 3-5 years, and the growth of rare earth leaders has not been fully recognized by the market.

Continue to reiterate: rare earth bibcock is expected to grow from cycle to growth. The market still treats rare earth leaders as cyclical stocks and is more worried about the persistence of high rare earth prices. We believe that the reason why cycle is called cycle lies in the periodic fluctuation of demand and supply, while rare earths are "high demand and limited supply"-on the supply side, China rare Earth Group is established to continue to implement total quantity target control. the supply of overseas mines peaked in the medium-and long-term period. The downstream transmission on the demand side is smooth, the downstream consumption of new energy vehicles, industrial motors and wind power has broken out, the supply and demand pattern of rare earth resources has undergone qualitative changes, and prices are expected to achieve weak periodic fluctuations and really return to the value of "sparse". On the other hand, the leader of the rare earth industry chain will usher in a "simultaneous rise in volume and price" and continue to benefit.

Core targets: 1) upstream resource end, northern rare earth, Baotou steel shares, Shenghe resources, etc.; 2) middle magnetic material end, Jinli permanent magnet, Zhenghai magnetic material, earth bear, Ningbo Yunsheng, Zhongke Sanhuan, etc.

Risk hint: the risk of new energy vehicle sales falling short of expectations, the risk of industrial policy fluctuation, and the measurement of industry supply and demand based on certain assumptions, there is a lower-than-expected risk, and the public data used in the research report may lag behind or not update in a timely manner, and so on.