Sou Hu Cai Jing·2025-10-13 12:11Core Viewpoint - The rare earth industry is in an early to mid-cycle uptrend, supported by China's strict supply management, favorable policy momentum, and the strategic role of rare earths in energy transition and advanced manufacturing [3][5][9]. Industry Overview - The rare earth market is experiencing a recovery phase, driven by strong demand from electric vehicles and renewable energy sectors, despite some fluctuations in light rare earth prices [5][9]. - Heavy rare earth prices remain robust due to supply constraints, with geopolitical risks contributing to price stability in the short term [6][9]. Price Outlook - Short-term prices are expected to remain firm with an upward trend due to supply tightness and geopolitical risks, while mid-term prices are projected to stabilize at a higher range as new capacities come online [6][43]. - Light rare earth elements may see moderate price fluctuations, while heavy rare earth elements could experience more significant volatility due to limited supply and difficulty in substitution [6][43]. Valuation Insights - The valuations for NRE and CRE are above their historical averages, reflecting the industry's strategic importance and policy support [6][9]. - NRE is assigned a target price of RMB 72, based on a 9.5x P/B ratio for 2026, while CRE is given a neutral rating with a target price of RMB 61.6, reflecting its smaller scale and limited integration [7][49]. Company Analysis - Northern Rare Earth (NRE) is the largest light rare earth producer in China, benefiting from a vertically integrated value chain and exclusive access to Bayan Obo resources, which supports stable profit margins [7][45]. - China Rare Earth Resources and Technology (CRE) focuses on heavy rare earths and is strategically important in the supply chain, but its valuation appears high relative to its earnings potential [49][52]. Supply Chain Dynamics - China dominates the global rare earth supply chain, accounting for approximately 70% of production and over 85% of refining capacity, which solidifies its control over pricing and supply [22][25]. - The U.S. and other countries are working to diversify their supply chains, but significant structural bottlenecks remain, particularly in refining and separation capabilities [30][36]. Global Trade and Supply Vulnerabilities - China plays a central role in global rare earth trade, exporting significant quantities while also importing raw materials to support domestic processing [25][28]. - The geopolitical landscape, particularly risks from Myanmar, poses challenges to supply stability, prompting countries to seek alternative sources [28][30].