Event: China Rare Earth Group Co., Ltd. was established. After research and decision by SASAC, it was established by three rare earth companies of Aluminum Corporation Of China Limited(601600) group, China Minmetals and Ganzhou rare earth group, as well as two rare earth technology R & D enterprises of China Steel Research Technology Group and Youyan technology group. The shareholding structure of the new company is: the State Council holds 31.21%; Aluminum Corporation Of China Limited(601600) group, China Minmetals and Ganzhou rare earth group hold 20.33% shares respectively; China Steel Research Technology Group and Youyan technology group hold 3.9% respectively.
The supply pattern is controlled by six major groups, and the North-South duopoly pattern is changed. Previously, China has formed an industry pattern dominated by Chinalco, China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) , Xiamen Tungsten Co.Ltd(600549) , China Minmetals, Guangdong rare earth and southern rare earth. Among them, there is only China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) light rare earth, and the others are heavy rare earth companies. After this integration, according to the total control index of rare earth mining, smelting and separation in 2021, China rare earth group has a total mining volume of 48500 tons of light rare earth in 2021, accounting for 32.58% of the total; The mining volume of medium and heavy rare earth is 13000 tons, accounting for 67.94% of the annual total; The smelting separation capacity is 57800 tons, accounting for 35.68% of the annual total. Echo with China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) north and south, forming a duopoly pattern.
Further weakening of supply elasticity:
On the one hand, the supply of black rare earth gradually withdrew from the historical stage, resulting in the elastic contraction of rare earth supply;
According to January 2021, The Ministry of industry and information technology issued the regulations on the administration of rare earth (Draft for comments) , further clarify the approval system for rare earth investment projects, total amount index management, and penalties for violations. The future growth is mainly due to the increase of the quota of the total amount index. In recent years, in order to ensure the strategic value of rare earth, China has extremely strict control over the total amount of mining. At present, the increment is mainly focused on light rare earths. The CAGR of young rare earths in 2017-2020 is 14%, and the CAGR of medium and heavy rare earths is only 2%.
The amount of rare earth abroad is insufficient. Myanmar's rare earths are mainly limited by the political turmoil and the double repression of the epidemic situation; The US mountainpass has a capacity of 40000 tons, which is basically full capacity, and there is no incremental plan in the future; Lynas in Australia has a capacity of 25000 tons, but its refinery in Malaysia (the only rare earth smelting and separation plant overseas) has been affected by environmental protection, and the capacity utilization rate has not been high. Since 13 years, the output has never exceeded 20000 tons.
Strong downstream demand (new energy vehicles + wind power + efficient motors):
New energy vehicles significantly drive the consumption of praseodymium and neodymium oxide. New energy vehicles mostly use permanent magnet motors, and permanent magnet motors need to consume a lot of high-performance Nd-Fe-B, which also makes the consumption of Nd-Fe-B per vehicle of electric vehicles significantly higher than that of traditional vehicles.
Wind power drives the increase of praseodymium and neodymium consumption. Wind turbine generators mainly include doubly fed and direct drive technologies. Direct drive permanent magnet generators have significant advantages. At present, the market penetration is only about 30%, and there is a huge space in the future. At present, the direct drive permanent magnet wind turbine has a large demand for Nd-Fe-B, and its permeability improvement is expected to accelerate the expansion of rare earth praseodymium and neodymium.
Energy saving + policy double support, high-efficiency industrial motor market space is huge. The Ministry of industry and information technology issued the motor energy efficiency improvement plan (2021-2023), which puts forward requirements for energy conservation and points out the direction for the replacement of the stock market. At present, the penetration rate of rare earth permanent magnet motor is less than 5%, and the development space is broad.
Prices may remain high. Combined with the current rigid supply pattern of rare earth and the strong demand in the downstream, we believe that the rare earth price will break through the traditional cycle logic, gradually close to the growth logic, and are optimistic about the high price performance next year.
Investment strategy and key recommendations:
Precious metals: the price of precious metals stabilized and rebounded in this period. The Fed's monetary policy has been implemented. Recently, major central banks around the world have begun to shift their control focus to curbing inflation. Inflation concerns have fermented again, and precious metal prices have stabilized and rebounded. However, in the medium and long term, the price of precious metals is still short.
Base metal:
Copper: Fundamentals, Las bambas blockade on the supply side is tentative, waiting for the next negotiation. The shortage of scrap copper has eased, Ningbo has been unsealed, and the supply of scrap copper has improved. On the demand side, near the off-season of consumption, the speed of stock removal decreased significantly. Supported by low inventories, futures still maintain a high water rise level. It is expected to maintain a high shock pattern in the short term.
Aluminum: aluminum price is stronger in this period. On the supply side, due to the impact of energy prices, the high cost of some aluminum plants in Europe has exceeded the selling price, thus reducing production and stopping production. Up to now, the production capacity in Europe has been expanded from 100000 tons to 300000 tons. Demand side and consumer side performance stabilized. In terms of inventory, the overall performance is to remove the inventory. Affected by the contraction of supply, the aluminum price shock is strong in the short term.
Lead: less affected by energy, lead is still weak. Under the background of almost no change in the operating rate of Chinese battery enterprises, driven by exports, China has removed about 90000 tons of lead from storage since October, but the momentum of lead export has decreased since December, and the subsequent removal may slow down.
Zinc: the price of zinc is stronger in this period. The rise of zinc price is also affected by the rise of energy price in Europe, and the supply is tight. On the consumer side, due to the approaching winter Olympics, the capacity utilization rate of processing enterprises in North China is limited. Affected by energy prices, zinc prices are strongly supported.
New energy metals:
Cobalt: the price of electrolytic cobalt in this period has stabilized as a whole. Omicron is still the main disturbance factor on the supply side. The uncertainty of shipping schedule will continue until Q1 in 2022. It is expected that the supply of cobalt raw materials will remain tight in the medium and long term. On the demand side, the overall trading was cold during overseas Christmas. China's downstream superalloy enterprises mainly needed to replenish the warehouse, and their willingness to take the initiative to prepare goods was weak.
Nickel: the nickel price is relatively strong in this period. On the supply side, the rainy season in the Philippines affects the shipment of nickel ore, and the strong nickel price reduces the downstream purchase desire. As a result, some enterprises close accounts and settle accounts near the end of the year, and the overall trading is cold. On the demand side, the ternary precursor went to the warehouse at the end of the year, adding that the self supply proportion of the current mainstream precursor enterprise integration technology route is continuously provided, the demand for nickel sulfate has declined, and the price of nickel nitrate is under pressure.
Lithium: the price of metal lithium and lithium salt continued to rise in this period. On the supply side, affected by the tight supply of raw materials, the output of lithium carbonate in China has shrunk, the capacity utilization of some lithium salt processing enterprises has differentiated, and the tight supply situation still exists. On the demand side, as of November 2021, the sales volume of Shanxi Guoxin Energy Corporation Limited(600617) has exceeded 3 million, and the annual sales volume is expected to exceed 3.4 million. Under the catalysis of downstream demand, it is expected that the lithium price in the subsequent market still has the potential to rise.
Market review:
As of the closing on December 24, the non-ferrous metal sector fell 5.1%, losing 4.4pct and 4.7pct respectively compared with the Shanghai and Shenzhen 300 index and the Shanghai Composite Index. The non-ferrous metal sector ranked 27th among the 28 sectors of Shenyin Wanguo. The two sub sectors with the best performance among the non-ferrous metal sub sectors this week were: Aluminum rose 2.2% and new metal materials rose 0.3%.
The top five stocks rose: Henan Mingtai Al.Industrial Co.Ltd(601677) , Anhui Xinke New Materials Co.Ltd(600255) , Jiangsu Pacific Quartz Co.Ltd(603688) , Novoray Corporation(688300) , Ningbo Boway Alloy Material Co.Ltd(601137) .
The top five stocks fell: Western Metal Materials Co.Ltd(002149) , Tianqi Lithium Corporation(002466) , Shanghai Zhongzhou Special Alloy Materials Co.Ltd(300963) , Guangdong Jiayuan Technology Co.Ltd(688388) , Ganfeng Lithium Co.Ltd(002460) .
Portfolio: Chengxin Lithium Group Co.Ltd(002240) Ye Chiu Metal Recycling (China) Ltd(601388) Tianqi Lithium Corporation(002466) Zhejiang Huayou Cobalt Co.Ltd(603799) Ganfeng Lithium Co.Ltd(002460) 20% each.
Risk warning: epidemic resurgence; The demand is less than expected; The US $2 trillion continued to be blocked.
