Financial Network reported on March 3 that after the holiday, procyclical industries such as non-ferrous metals and steel have surged. As an important part of non-ferrous metals , the rare earth industry, known as the "technological vitamin" and "the mother of new materials", has ushered in Investment outlet.
With the country's vigorous policy implementation of environmental protection rectification, multiple purchases and storage, rare earth and other special actions, coupled with strong downstream demand, the volume and price of the rare earth industry have stabilized, the industry has continued to benefit, and the industry's prosperity has gradually increased. Under the current inflation expectations, procyclical industries such as rare earths in the A-share market are at the forefront of investment. Since February, the rare earth industry has outperformed the broader market. On February 22, the Huatai-Berry CSI Rare Earth Industry ETF, led by 15-year “index veteran” Li Qian, was successfully launched. It was also the first domestic rare earth ETF. According to channel news, Huatai-Berry Rare Earth ETF subscription funds have exceeded the upper limit of 2 billion yuan.
Today, the rare earth ETF has added a "new member", and the Harvest CSI Rare Earth Industry ETF was officially launched today. This is the second rare earth ETF on the market following the issuance of the Huatai-Berry Rare Earth ETF. At the same time, this is also the first fund that fund manager Tian Guangyuan has handled since he took office.
What are rare earths? On the periodic table of chemical elements, rare earth is the collective name for seventeen elements, namely the lanthanide series elements (15 types) + scandium and yttrium. Rare earth elements have similar properties. To obtain a single element compound or metal, highly difficult separation technology is required. This also brings opportunities for the future development of the rare earth industry.
There are currently three major reasons for investment in the rare earth industry:
1. Supply-side reform has made progress, boosting the healthy development of the rare earth industry.
Supply contraction under the influence of policies has led to a rising rare earth price cycle. According to statistics from the China-Thailand Economic Research Institute, since 2011 , 12 relevant laws, regulations and policies (as shown in Figure 1). According to statistics from Harvest Fund , the main reason for the first three rising cycles of rare earth prices since 2010 was the contraction of supply affected by policies, and the duration was short (as shown in Figure 2).
Figure 1: Supply contraction under the influence of policies
Figure 2: The first three rising cycles of rare earth prices
Excess production capacity has been basically cleared, and inventories have dropped significantly In 2019, 12 ministries and commissions including the Ministry of Industry and Information Technology issued The "Notice on Continuing to Strengthen the Order and Rectification of the Rare Earth Industry" was issued, and a multi-department joint supervision mechanism was established for the first time. The rare earth rectification has officially entered the normal state, demonstrating the country's determination to control rare earth resources and laying the foundation for the long-term healthy development of the rare earth industry. Domestic top-level design, rare earth production quotas are strictly controlled. According to statistics from the Zhongtai Securities Research Institute, domestic stocks of praseodymium and neodymium oxide have dropped significantly, gradually reducing from 11,025 tons at the beginning of 2020 to 4,155 tons. It is worth noting that since March 2020, the price of praseodymium and neodymium oxide has increased from 267,500 yuan/ton to 398,500 yuan/ton, an increase of 49%. The increase rate is relatively gentle. The main driving factor behind it is the continued high growth of the demand side. Policy factors have little impact. Harvest Fund believes that under the influence of policy promotion and continued demand growth, the rare earth price rising cycle is expected to continue.
The concentration of industry leaders has increased, laying a solid foundation for the growth of rare earth prices According to the "Thirteenth Five-Year Plan" for the rare earth industry, by 2020 the six major rare earth groups will complete the integration of all rare earth mining, smelting and separation enterprises in the country, forming a comprehensive monopoly situation. According to statistics from the China-Thailand Economic Institute, the integration work of the six major rare earth groups has been completed in 2017. 22 rare earth mines and 54 smelting and separation companies have been integrated, forming a complete monopoly on the country's regular rare earth resources. The smelting and separation production capacity has been reduced from 400,000 tons. to 300,000 tons, the concentration of upstream resources has increased significantly, effectively alleviating the scattered, chaotic and poor upstream supply.
2. The increase in demand side of rare earths is superimposed, and the downstream industries continue to upgrade.
This is mainly reflected in four aspects: new energy vehicles, air conditioning fields, direct drive fans, industrial robots and intelligent manufacturing.
Increased new energy vehicle policies will drive the rapid development of new energy vehicles. Popularization of As domestic and foreign new energy vehicle companies rapidly increase the volume of high-quality models, the trend of more and more people choosing new energy vehicles as a means of transportation has taken shape.According to statistics from Huatai-PineBridge Fund, assuming that global new energy vehicle sales from 2021 to 2023 are 452/616/8.18 million units respectively, the demand for NdFeB is 164/220/28800 tons respectively, a year-on-year increase of 48%/34% /31%. From a domestic perspective, the "New Energy Vehicle Development Plan" requires the penetration rate of electric vehicles to reach 25% by 2025. The rapid popularity of new energy vehicles will drive a significant increase in demand for rare earths.
The demand for air conditioners has resumed growth, and the penetration rate of variable frequency air conditioners has continued to increase. The post-real estate completion cycle of has accelerated, promoting the return to growth of air conditioners. In addition, air conditioners have implemented new energy efficiency standards (effective from July 1, 2020) and have reached international leading levels. Benefiting from the improvement of energy efficiency standards, air conditioners and NdFeB for air conditioners will see structural growth. The current penetration rate of domestic NdFeB inverter air conditioners is less than 50%, and Huatai-PineBridge Fund is expected to gradually increase it to more than 80%.
The 14th Five-Year Plan will expand the capacity of wind power, and the demand for NdFeB in the wind power field will grow steadilyIn the "14th Five-Year Plan", it is necessary to set a development space for wind power that is consistent with the national strategy of carbon neutrality: Guarantee the average annual new installed capacity More than 50 million kilowatts. After 2025, China’s average annual newly installed wind power capacity should be no less than 60 million kilowatts. neodymium iron boron permanent magnet material is mainly used to produce permanent magnet direct drive fans. The current penetration rate of global wind power permanent magnet direct drive motors is 30%. Huatai-PineBridge Fund expects that the new installed capacity in the wind power field will bring high-performance neodymium in 2022. The demand for iron boron will reach 23,500 tons.
Rising labor costs have spurred growth in demand for industrial robots and smart manufacturing According to CITIC Securities Research Institute, the minimum wage in developed regions such as Beijing, Shanghai, Zhejiang, Guangdong, and Jiangsu has maintained an average annual compound growth rate of about 10% in the past decade. The rapid rise in labor costs has given rise to China's growing demand for industrial robots. From the analysis of historical data, China's robot application rate in the industrial field is still very low. There is still a lot of room for growth in China's industrial robot market in the future, which will also bring opportunities for the development of neodymium iron boron materials, the core power of industrial robots.
3. China ranks first in rare earths in the world, with unprecedented strategic significance
" The Middle East has oil, and China has rare earths" From the perspective of resource distribution, according to USGS data, the total global rare earth resources are 120 million tons. China's rare earth resource reserves rank first in the world, with proven reserves accounting for 37% of the global total, more than twice that of the second largest country ( Vietnam ). In the future, the status of rare earths in the process of industrial modernization will gradually approach or even surpass that of petroleum. Whether to master the core industrial chain and pricing power of rare earths will become a key factor in the comparison of the strength of major powers. In the past two or three decades, China's rare earths have been criticized for "having rare earths but no pricing power." However, as the industry develops increasingly standardized, the pricing power of rare earths has gradually returned to China's hands, and has become an important factor in the internationalization of the RMB. hand.
my country has great advantages in rare earth-related technologies and a relatively complete industrial chain. China’s rare earth smelting and separation capabilities rank first in the world, 15-20 years ahead of the United States. At present, almost 90% of the world’s rare earth ores are shipped to China for processing and separation. into various rare earth oxides and rare earth metals. Since the "Eleventh Five-Year Plan", with the support of national policies and the joint efforts and technological research of relevant domestic enterprises and scientific research institutes, my country has made great progress in the scientific research of rare earth permanent magnet materials . The number of patent applications for rare earth permanent magnet materials has increased significantly since 2009. As of November 2018, my country has ranked second in the world in the number of patent applications for NdFeB permanent magnet materials, second only to Japan.
Rare earth permanent magnet materials are important strategic materials and have a significant strategic deterrent effect. Because rare earth permanent magnet materials have excellent optical and electromagnetic properties, they can be combined with other materials to form a wide variety of new materials with different properties. Their most significant functions That is to greatly improve the quality and performance of other products. Therefore, many advanced weapons, such as the fuselage and engine of stealth fighter jets, missile guidance systems, etc., are inseparable from rare earth permanent magnet materials. China's industrial chain advantages in rare earths not only guarantee the needs of its own military industry, but also serve as a strategic deterrent in emergencies. It can be said that mastering rare earths is equivalent to grasping the lifeblood of high-end manufacturing.
focuses on these two rare earth ETFs. They both track the CSI Rare Earth Industry Index (930598.CSI). This index selects stocks of listed companies involved in rare earth mining, rare earth processing, rare earth trading and rare earth applications as constituent stocks, reflecting the overall performance of listed companies in the rare earth industry. This index can not only fully reflect the overall trend of the rare earth industry in A-shares, but also allow investors to conveniently place leaders in the rare earth industry while effectively diversifying the risk of over-concentration of shareholdings. Currently, the number of constituent stocks in the index is 30.
Looking at from the perspective of industry distribution, according to Shenwan's first-level industry classification, non-ferrous metals account for 69% and electrical equipment accounts for 18%; according to the second-level industry classification, rare metals. Metal and non-metal new materials accounted for 59%, followed by power equipment accounting for 10.5% and industrial metals accounting for 9.7%.
Judging from the top ten heavyweight stocks, the high purity of is one of the highlights of the index. Northern Rare Earth and Shenghe Resources are relatively pure rare earth concept stocks, mainly engaged in rare earth and magnetic materials; Aluminum Corporation of China and Baotou Steel Co., Ltd. are both one of the six major rare earth groups; Hengdian East Magnetics mainly deals in rare earth magnetic materials applications, etc. Northern Rare Earth and Shenghe Resources have become the leaders in terms of volume by virtue of their size advantages, and their weight is relatively large, which can accurately reflect the trend from the index. However, , Goldwind Technology, , and Jingyuntong belong to the industrial industry and are slightly related to rare earths, so their weights are relatively low.
The top ten constituent stocks of the CSI Rare Earth Industry Index
Judging from the historical trend, has risen significantly in the bull market, and has also fallen significantly in the bear market or when rare earth prices are weak, which is a typical cyclical stock trend. Wind data shows that the returns of the CSI Rare Earth Industry Index in 2016, 2017, 2018, 2019, and 2020 were -14.64%, 7.55%, -46.96%, 37.80%, and 19.31% respectively. As of February 22, 2021, the CSI Rare Earth Industry Index has increased by 92.7% since 2019.
Industry insiders said that ETF has many advantages such as risk diversification, low transaction rates, low investment thresholds, excellent liquidity, and rich product systems. It is a high-quality passive investment tool that can meet the various investment needs of institutions and retail investors. . As more and more subdivided ETFs come online, investors will have more and more investment products and opportunities to choose from, and the investment experience will gradually improve. As a subdivision of non-ferrous metals, rare earths have stronger strategic significance and room for price increase than general non-ferrous metals. Rare earth ETFs, as a much-discussed variety, are expected to fulfill investors’ investment expectations for subdivided themes.
Looking forward to the market outlook, the rare earth sector is expected to start a long-term growth.
Shenghe Resources said that the prices of main rare earth products are affected by factors such as the supply and demand structure and will start to rise from the second half of 2020. In the future, with the rapid development of new energy vehicles, wind power, variable frequency air conditioners, robots and other industries, demand will grow rapidly, which will form a strong support for the prices of major rare earth products.
Zheshang Securities said that permanent magnet materials are the area with the largest downstream share in the rare earth industry and the fastest growth rate in the future. Among them, emerging industries such as new energy vehicles have brought huge demand potential. It is expected that the consumption of NdFeB magnetic materials in 2025 will be more than four times that of 2020.
CITIC Securities pointed out that as downstream demand for automobiles, wind power, energy-saving inverter air conditioners, etc. continues to pick up, the consumption of upstream raw materials praseodymium neodymium oxide, dysprosium oxide, and terbium oxide may continue to grow at a high rate. However, the strict control over the supply of rare earths remains unchanged, and coupled with the recent release of demand for replenishment in the industrial chain, rare earth prices are expected to continue to rise in the first quarter. It is expected that the high point of praseodymium and neodymium oxide may exceed 600,000 yuan/ton in the first half of 2021, and the high point of terbium oxide may exceed 10 million yuan/ton. 2021 may become the first year of growth for the rare earth market.
Everbright Securities stated that from the perspective of rare earth prices, rare earths are precious high-quality resources for the country and should not be sold at "cabbage prices"; from the perspective of rare earth production, reasonable and orderly mining is the development of the rare earth industry. Good medicine, rare earth The essence of being sold at a low price still lies in the vicious competition among enterprises, competing to lower prices; from the downstream perspective of rare earths, there are many low-end rare earth products that are single and repetitive, while there are fewer high-end rare earth products; the development of high-level rare earth products is a top priority, which is important for Rare earth downstream magnetic materials or other fields present opportunities and challenges.In terms of
investment advice, in the short term, although rare earth quota indicators have been liberalized, short-term release still takes time, supply increment is limited, demand continues to grow, and the gap between supply and demand appears. Rare earth prices are expected to continue to rise, which is good for upstream resources with resource attributes. Rare earth production and smelting enterprise. In the medium to long term, demand for magnetic materials is expected to maintain a high growth rate, and magnetic materials companies are expected to fully enjoy the dividends of industry expansion.
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