Recently, the storm of rare earth concentrate price increase between Baosteel Co., Ltd. and Northern Rare Earths is becoming more and more intense. The small shareholders of both parties are fighting against each other in the stock bar, and they are both protecting the interests of companies of all parties. Both listed companies have hundreds of thousands of small and medium shareholders. This is not a small number. How to safeguard the interests of small and medium shareholders of listed companies is the key to solving the dispute between the two listed companies. When will the price increase storm of Baosteel Co., Ltd. and Northern Rare Earths rare earth stop? First, let’s review the causes of this storm.
Rare Earth
1. The cause of the storm
Since the steel price in 2022 fell sharply since the second quarter of today, with a drop of 40%. Baosteel Co., Ltd.'s steel sector is in a loss situation, and this loss is becoming more and more serious as the steel price falls. The price of rare earths has been at a high level in the first half of this year, and the profits of Northern Rare Earth's first quarter quarterly report and 2022 semi-annual report hit a record high in the same period. In such a sharp contrast, the boss of any company has an idea, why do I supply rare earth concentrate to you at a price far lower than the market? You make a lot of money, but my company is on the verge of loss. Therefore, there was a storm that Baosteel Co., Ltd. required the price increase of rare earth concentrates.
This storm is currently undergoing the third price increase process. Let me briefly review this storm.
(1) On June 23, Baosteel Co., Ltd. issued an announcement, intending to re-sign the "Rare Earth Concentrate Supply Contract" with Northern Rare Earth, and intending to adjust the transaction price of rare earth concentrates of both parties to 39,189 yuan/ton excluding tax (dry volume, REO=50%) from July 1. For every 1% increase or decrease of REO, the price of excluding tax will increase or decrease of 783.78 yuan/ton (dry volume).
(2) Northern Rare Earth failed to pass at the shareholders' meeting held on July 15.
(3)On October 26, Baosteel Co., Ltd. issued an announcement, intending to adjust the price of rare earth concentrates supplied to northern rare earths to 37,230 yuan/ton excluding tax (dry quantity, REO=50%). For every 1% increase or decrease of REO, the price excluding tax will increase or decrease of 744.60 yuan/ton (dry quantity).
(4) Northern Rare Earth failed to pass at the shareholders' meeting held on November 10.
(5) On December 12, Baosteel Co., Ltd. issued another announcement stating that after negotiation between the two parties, it plans to adjust the price of rare earth concentrate in the fourth quarter to 35,313 yuan/ton excluding tax (dry volume, REO=50%), and every 1% increase or decrease of REO, the price excluding tax will increase or decrease by 706.26 yuan/ton (dry volume).
2. When can the storm stop
Baosteel Group Announcement
Yesterday Baosteel Group issued an announcement, meaning that Baosteel Group's rare earth ore can only be used internally and cannot be sold to the outside world. Baosteel Co., Ltd. issued an announcement on November 9, 2022: "If the shareholders' meeting of Northern Rare Earth (the small and medium shareholders of Northern Rare Earth voted on the price of rare earth concentrate) still cannot be reviewed and approved, and the two parties cannot carry out rare earth concentrate purchase and sales in accordance with the existing trading model. In order to ensure the normal development of the company's rare earth concentrate sales business, the company will plan to sell rare earth concentrates through bidding, auction and other public methods in accordance with laws, regulations and relevant national policies and regulations. Northern Rare Earth, as a long-term and stable large customer, can participate in the company's public sales. Specific sales conditions, methods, price levels, quantity, etc., authorize the company's management to comprehensively combine various factors and make decisions based on production and operation needs." This is a public slap of Baosteel Co., Ltd. on Baosteel Co., Ltd., and it is also a kind of comfort to Northern Rare Earth.
Now Baosteel Co., Ltd. is the eldest son of Baosteel Group, and Northern Rare Earth is the second son. Since ancient times, parents have loved their younger son more and let the eldest son bear more obligations and responsibilities. However, judging from the development in recent years, Baosteel Group has cared more about her unsatisfactory eldest son. When Baosteel Co., Ltd.'s stock price hovered around 1 yuan, she couldn't afford the 4 billion yuan repurchase, but her younger son Northern Rare Earth took some funds to repurchase. In addition, the rare earth minerals in the hands of the group company and Northern Rare Earth were injected into Baosteel Co., Ltd., which shows that the group company attaches great importance to Baosteel Co., Ltd., otherwise Baosteel Co., Ltd. would have been delisted long ago.
On December 13, 2022, Baosteel Co., Ltd. proposed that the third price increase of rare earth concentrate this year was the result of Baosteel Group's active mediation.After the second price increase failed, Baosteel Co., Ltd. was preparing to implement a market-oriented pricing mechanism, but it was impossible for anyone with discerning eyes to see that it would not work and national policies did not allow it. Will the third price increase of rare earth concentrate pass? I personally think it will pass, and it is very likely. There are several reasons:
(1) This time the price of rare earths has a certain decline compared with the first and second times;
(2) If this vote cannot be passed, it will be the third slap in the face of Baosteel Group, Baosteel Co., Ltd., and Northern Rare Earths, and this time it is very heavy. I failed twice before. If I was not sure this time, there was no need to propose a third vote.
(3) Baosteel Group has pledged 8.335 billion shares (accounting for 18.28% of the total shares ). If the third price increase of rare earth concentrate fails, then the loss in 2022 will be a foregone conclusion. The steel price in 2023 is estimated to be difficult to exceed the price in 2022. Judging from the Central Economic Work Conference that ended yesterday, the country still adheres to the policy of housing for living, not speculation, and the demand for overall steel will not increase significantly. In this case, it will also make a loss in 2023. There is really a risk of delisting at that time.
Therefore, I personally think that the Northern Rare Earth vote on December 28 is very likely to pass. If passed, the rare earth concentrate price increase storm of the two companies will temporarily pass, but the actual problems have not been resolved, and at the same time, it will have great guarantees for Baosteel Co., Ltd.'s performance in 2023. If Baogang Co., Ltd. fails to pass, it will fall into a passive position.
It is estimated that for this vote, the group company will have many policies to tilt towards rare earths in the north to ensure the vote is passed. Let’s wait and see.
