Event: on January 7, 2022, China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) announced the implementation of the rare earth concentrate supply contract signed with Inner Mongolia Baotou Steel Union Co.Ltd(600010) in 2021 and the forecast in 2022. In 2021, China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) related party transactions amounted to 179800 tons (dry volume, converted into REO = 50%, the same below), with a total transaction amount including tax of RMB 3.241 billion, equivalent to RMB 15952 yuan excluding tax purchase price of a single ton of rare earth ore; In 2022, it is estimated that the volume of related party transactions will not exceed 230000 tons, the amount of transactions including tax is expected to not exceed 7 billion yuan, and the purchase price of a single ton is 26360 yuan / ton (REO = 50%). The price can be adjusted through negotiation according to the price fluctuation of products in the rare earth market every quarter.
The proposed procurement volume increased by 27.9% and the procurement cost increased by 65.3%. According to the procurement plan, the procurement scale of China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) mine in 2022 will increase by 27.9% year-on-year, equivalent to 115000 tons of rare earth oxide supply. The purchase price of concentrate increased from 16300 yuan / ton to 26900 yuan / ton, an increase of 65.3%, corresponding to an increase of 27200 yuan / ton in the cost of a single ton of mixed rare earth oxide. The price of praseodymium and neodymium oxide has increased from 418000 yuan / ton at the beginning of 2021 to 906000 yuan / ton, with an absolute increase of 482000 yuan / ton, which shows that the increase of raw material cost has no material impact on China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) profit.
The supply of rare earths is highly controlled by the state. The concentration of supply and the standardized operation of the market help to explore the value of rare earths. As a national strategic resource, rare earth mining and separation are highly controlled by the state. Under the background of increasing demand, the growth of supply concentration will help the product price reflect the “strategic” value. At present, China’s rare earth mining and separation indicators are controlled by the “six groups”. On December 23, 2021, China rare earth group was merged by enterprises with resource mining qualifications in rare earth industries such as Aluminum Corporation Of China Limited(601600) group, China Minmetals Group and Ganzhou rare earth group, and the mining and development of rare earth resources in the South was further consolidated. In the follow-up, the trend of “multiple merger” of rare earth mining enterprises may become more and more intense, and the resource mining will be further standardized and centralized.
The split extension of consumption scenario + increased penetration rate, the high demand for permanent magnet materials will continue to drive the high prosperity of rare earth market, the clarity of supply pattern and help rare earth prices stand at a high level for a long time. In the second half of 2021, with the demand explosion of new energy vehicles, variable frequency air conditioners, industrial motors and other application scenarios, the consumption of permanent magnet materials increased rapidly, driving the demand for key rare earth elements such as praseodymium, neodymium, dysprosium, terbium and other key rare earth elements in the upstream to climb. The penetration rate of new energy vehicles is expected to be further improved in 2022. The air conditioning energy efficiency policy promotes the growth of energy-saving frequency conversion air conditioning. Under the trend of improving motor energy efficiency, the growth rate of permanent magnet material consumption is expected to increase again. The supply and demand is expected to maintain a tight balance in 2022.
Investment suggestion: from the perspective of both supply and demand volume and supply concentration, the price of rare earth oxide is expected to continue to stand at a high level in 2022 after experiencing a rapid rise in 2021, corresponding to the performance growth of upstream enterprises with rare earth mining qualification. We suggest paying attention to China’s rare earth resource supply leader China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) .
Risk tip: China’s policy change risk, overseas rare earth supply growth risk, downstream demand fluctuation risk.
