Overseas rare earth production is blocked: LYNAS affected by the epidemic, Q3 production decreased by 10% month-on-month.

Event: Lynas announced production in the third quarter of 21, the company's total REO production was 3166 tons (Q2 for 21 years was 3778 tons), a decrease of 16.2% compared with the previous quarter, and the total production of praseodymium and neodymium oxide was 1255 tons (Q2 for 21 years was 1393 tons), a decrease of 10% compared with the previous quarter.

Affected by the epidemic, the supply of Lynas Q3 has been tightened. Lynas disclosed in its FY2022 quarterly report that the company's separation plant had been closed for 11 days due to the intensification of the epidemic in the Kuantan region of Malaysia. Under the premise of giving priority to the supply of praseodymium-neodymium oxide, the company's capacity utilization of praseodymium-neody The company's total mineral output of Q3 fell from 3778 tons of Q2 to 3166 tons of REO (QoQ-16.2%), of which praseodymium-neodymium oxide production fell from 1393 tons of Q2 to 1255 tons of REO, market supply fell by 138tons, a month-on-month decline of 10 per cent, a year-on-year decline of 6 per cent.

The demand for magnetic materials downstream is strong, and the price of Q3 is rising. Lynas Q3 achieved revenue of A $122 million and sales of 2724 tons REO, fell by 2034 tons compared with Q2. REO, fell by 42.75 per cent month-on-month, down 39.54 per cent from a year earlier. The price of the corresponding Q3 product is A $44.64 / kg, an increase of 14.25% compared with the Q2 month-on-month increase of 130.05% compared with the same period last year.

In addition, the company expects that the demand of downstream magnetic materials enterprises will accelerate in 2022, and the price of praseodymium and neodymium is easy to rise

It may be difficult to increase the supply of Lynas in the next three years. Lynas's Mount Weld mine, a rare earth, niobium, tantalum and phosphorus associated deposit, was put into production in 2013 and currently has a capacity of about 25000 tons of (REO) per year, accounting for about 10 per cent of global light rare earth production. There are no plans to continue to expand production at the mine end in the short term, and the capacity increase is relatively limited. Lynas is currently committed to Project 2025, including Kalgoorlie in Western Australia and (HRE) in the United States. 1) Kalgoorlie project:

The Weld mine is of the monazite type and contains radioactivity, and the Malaysian government has asked it to build a permanent facility to store low-level radioactive waste. Lynas plans to build a processing plant in Kalgoorlie, Australia to extract radioactive elements and transport non-radioactive rare earth concentrates to Malaysia to extract rare earths. At present, the project is in the stage of construction, and 70% of the equipment has been purchased. 2) American project: at the same time, Lynas plans to build two rare earth separation plants in the United States, which still takes a long time in view of environmental, technical and other factors. According to the company's October announcement, the company has submitted the early plant design and engineering plan documents, and the U.S. Department of Defense is in the stage of value evaluation.

We still maintain the previous view that rare earths will eventually return to value and sell at a "rare" price. The current supply and demand pattern is "demand increase + supply contraction + low inventory", prices are easy to rise and difficult to fall. The high consolidation of rare earth prices in September is mainly due to magnetic companies slowing down the pace of procurement due to financial pressure, with the arrival of Q4 peak season orders, rare earth prices still have upward momentum. 1) demand side: the demand for new energy vehicles + "green electricity" can not be ignored. According to our October 11 release of "Ten questions about rare Earths: once again witnessing the era of rare Earths in China", and maintaining the estimates in the industry's "rating increase" report, global sales of new energy vehicles have reached 50-6 million units, about 10 times that of 15 years. The share of new energy vehicles in rare earth demand in the next three years is expected to increase from 10% to more than 20%, similar to the impact of new energy vehicles on lithium carbonate in 2015-2020. If wind power and industrial motors are directly driven by permanent magnets under the endogenous demand of "double carbon", "green power" will occupy an absolutely dominant position. 2) supply side: the total quantity target is implemented at home, but the new overseas supply is limited. The total control index of rare earth minerals in 2021 is 168000 tons REO, an increase of 28000 tons over 2020, of which light rare earth ores increase by 28000 tons REO, medium and heavy rare earth ion ores are the same as in 2020, and continue to be strictly controlled. Overseas supply is inflexible. Since July 21, due to the superimposed political instability of the Burmese epidemic, Myanmar's mineral imports began to shrink (there were few imports in August), which is expected to remain unabated in the short term. At present, the production capacity of the MountainPass mine in the United States has climbed to the full production stage, and there is no short-term mine expansion plan. The Lynas mine currently has a capacity utilization rate of 70%, and the new supply is limited.