20180709-广发证券_香港_-Rare_Earths_Sector__Industry_regulations_becoming_the_norm,_environmental_checks_supporting_the_sector_2页_342kb

Rare Earths Sector Summary

Core Content

The rare earths sector is undergoing significant regulatory and environmental changes that are reshaping its supply dynamics and future outlook. The report highlights the tightening of environmental regulations and industry controls as key drivers of supply-side reforms, leading to reduced production and increased demand pressures.

Main Points

• Environmental Regulations:

  • The Ministry of Ecology and Environment has intensified inspections in major rare earth producing provinces such as Jiangxi, Inner Mongolia, Guangxi, Guangdong, and Jiangsu.
  • Several companies in these provinces have halted production due to environmental violations, affecting approximately 1,500-2,000 tonnes of monthly Pr-ND output.
  • Environmental supervision is expected to continue being strict, making it difficult for non-compliant companies to resume operations.

• Industry Regulations:

  • In 2017, comprehensive investigations were conducted on black rare earths, curbing over-quota usage and establishing long-term mechanisms.
  • Procurement of rare earth concentrates has become more restricted, indicating a significant decline in black rare earths production.
  • Some metallurgical companies have started using imported ore due to domestic production constraints.

• Production Quotas:

  • In 1H18, rare earth mining and smelting quotas increased by 40% YoY.
  • However, the report suggests that actual output may not reach these levels due to environmental issues and the lack of approved mining rights in recent years.
  • The 2H18 quota increase is uncertain, and companies holding quotas may not be able to fully utilize them.

• Demand Trends:

  • Demand for rare earths is growing steadily, particularly due to the rapid development of third-generation permanent magnet NdFeB.
  • Pr-ND accounts for about 20% of the output but contributes around 70% of the total rare earth output value.
  • Supply and demand for Pr-ND remain tight, with prices expected to rise due to production cuts and peak season purchases.

Key Information

• Supply and Demand Dynamics:

  • The supply of Pr-ND is constrained due to environmental regulations and production cuts.
  • The demand for rare earths, especially Pr-ND, is increasing due to technological advancements.

• Market Outlook:

  • The sector is expected to outperform the benchmark (Hong Kong Hang Seng Index) over the next 12 months.
  • The report suggests a positive outlook for the sector, driven by tightening regulations and sustained demand.

• Risks:

  • Companies with environmental issues may resume production after inspections.
  • Policy implementation may lag behind expectations.
  • Poor sales of heavy rare earth inventory could impact the sector.
  • Continuous inflow of overseas rare earth ore may ease supply pressures.

Sector Rating

• Positive: The sector is expected to outperform the benchmark by more than 10% over the next 12 months.

Analyst Certification

• The analysts certifying the report confirm that all views expressed accurately reflect their personal opinions and that their compensation is not directly tied to specific recommendations.

Disclosure of Interests

• GF Securities (Hong Kong) does not hold shares in the mentioned securities.
• No investment banking relationships with the companies discussed in the past 12 months.
• Analysts and their associates do not serve as officers of the companies mentioned and have no financial interests in the securities.

Disclaimer

• This report is for informational purposes only and does not constitute an offer to buy or sell securities.
• The information and opinions are subject to change without notice.
• GF Securities (Hong Kong) accepts no liability for any loss arising from the use of this report.
• Recipients should not rely solely on this report for investment decisions and should seek professional advice where necessary.

Copyright

• Copyright © GF Securities (Hong Kong) Brokerage Limited.
• Unauthorized copying or redistribution of the materials is prohibited.