Rare Earth Industry Research Report: A Quota- and Control-Driven Tight Balance—Profits Stay at the Resource End; For Magnetic Materials, Only the Leaders

Report Date: 2026-10-20 | Subject: Rare Earths (focus on the rare earth permanent magnet value chain) | Sector Rating: Cautiously Bullish | Time Horizon: 12 months

Core Conclusion: China's rare earth supply has become fully "institutionalized"—since 2024, mining and smelting/separation quotas have been issued only to the two major groups, Northern Rare Earth and China Rare Earth Group; the 2025 Interim Measures for Total-Volume Control Management further brought imported ore, monazite, and secondary resources under the quota system (roughly 92% of supply under control). Combined with the contraction of Myanmar ore (2025 output 22,000 tonnes, -19% YoY, USGS) and MP's halt of concentrate shipments to China, the global NdPr (praseodymium-neodymium oxide) balance sheet turns into a deficit in 2026-2027. However, it must be emphasized that this deficit rests on the unofficially confirmed market assumption of "zero growth in China's quotas" (quotas have not been published since 2025; Reuters reports them flat with 2024 at 270,000 tonnes), and the overseas CIF price has already fallen below the US Department of Defense floor price of USD 110/kg (approximately USD 95/kg in August 2026, Benchmark), indicating that the "shortage" outside China is essentially a policy rent rather than a global physical deficit. Under the base case, praseodymium-neodymium oxide prices trade in a wide range of RMB 680,000–840,000/tonne over 12 months, with a midpoint around RMB 760,000/tonne (current price RMB 739,000/tonne, roughly the 56th percentile of the 2020-2026 window), and the probability-weighted expected upside is only about +2%—the odds are thin—bullish on direction, but cautious on slope and realization conditions. The industry profit pool clearly stays at the resource end (the quota duopoly); the magnetic materials segment earns only processing fees on a cost-plus basis, and undifferentiated capacity is a classic case of revenue growth without profit growth. In stock selection, prefer the resource duopoly and magnetic materials leaders (Northern Rare Earth, China Rare Earth, JL MAG), and avoid undifferentiated magnetic materials capacity (Zhongke Sanhuan, Zhenghai Magnetics type).

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I1 Industry Definition and Scope

This report covers the rare earth value chain, with a focus on the rare earth permanent magnet (NdFeB) chain: upstream mining (light rare earths: Bayan Obo / Sichuan bastnaesite; medium-heavy rare earths: southern ion-adsorption ores, Myanmar ore) → smelting and separation (oxides, priced against praseodymium-neodymium oxide; medium-heavy rare earths against dysprosium oxide and terbium oxide) → rare earth metals → NdFeB magnetic materials (including Dy/Tb grain boundary additions) → downstream applications (NEV drive motors, wind power, small motors such as inverter air conditioners, industrial/humanoid robots, consumer electronics, conventional-vehicle EPS, and non-magnet uses).

China's position is the starting point for understanding this industry: in 2025, China produced 270,000 tonnes of rare earth ore, about 69% of the global total (USGS); its smelting/separation output exceeds 90% of the global total; and sintered NdFeB magnet output is about 94% of the global total (IEA, 2024). There is no exchange-traded futures price discovery; pricing relies on spot brokerage quotes from SMM/Asian Metal/Baichuan Yingfu plus Northern Rare Earth's monthly listed prices; the cost pass-through anchor is the quarterly related-party pricing of rare earth concentrate between Baogang Steel and Northern Rare Earth. Overseas, the duopoly of MP Materials (Mountain Pass, with US DoD equity stake and a price floor) and Lynas (Mt Weld mine + Malaysia separation, the only scaled separator outside China) forms the prototype of a "de-China" chain, but in 2025 their combined NdPr output was only about 9,800 tonnes, less than 10% of global NdPr supply.

I2 Demand: The Tug-of-War Between the Electrification Megatrend and Air Conditioner Fading

2.1 End-Market Structure: The Largest Segment Is Also the Slowest and Now Shrinking

Global NdPr oxide demand in 2025 is about 108,000 tonnes (S&P Global's first NdPr market report, August 2026); S&P expects 143,000 tonnes by 2030 (+32%, CAGR about 6%). The end-market breakdown (2025, S&P basis) is as follows:

• NEVs + HEVs (25%, ~27kt): the largest structural growth engine. Global EV sales reached 21.47 million units in 2025 (+21.5%, SNE Research); the IEA expects about 23 million in 2026. Permanent magnet synchronous motors remain the mainstream route (about half of EV motor share); per-vehicle usage is about 2.5-3.5kg for BEVs and 1.2-2.5kg for HEVs (Adamas sales-weighted basis about 2.8kg/vehicle).
• Small motors, appliances, and consumer electronics (47%): the largest but slowest-growing segment, and now shrinking in real time—China's domestic household air conditioner sales were 7.38 million units in July 2026, -30.2% YoY; domestic production scheduling has fallen YoY for 8 consecutive months through September (industry data, via sell-side citations); H1 2026 household AC retail volume -19.5% (national subsidy tapering + high base). The 320 million-unit AC output in 2025 (+18%) was a policy-overdrawn peak.
• Wind power (10%, ~10.8kt): a diverging end market of "volume up, unit intensity down": global new installations in 2025 were 165GW (+40%, a GWEC record), but China's wind-power magnet demand fell -14% YoY (SMM)—direct-drive turbines use 0.6-0.65 tonnes/MW while doubly-fed (DFIG) units use only about 0.02-0.05 tonnes/MW; the rising share of DFIG/half-direct-drive in China's onshore fleet drags down unit intensity; offshore and overseas direct-drive adoption is the real increment for magnets.
• Robots (4%, ~4.3kt): fastest-growing (China's industrial robot output +55% in 2025, SMM), but still small in scale; humanoid robots use 2-4kg per unit (Optimus about 3.5kg), with global shipments of only about 7,000 units in 2025 (IFR)—even ramping to 100,000 units by 2027 would contribute less than 0.2% of total demand—this is a real option for after 2030, not today's engine.

2.2 Demand Bridge (2025→2027E, Bottom-Up)

Bottom-up bridge components: EV +3.4kt (sales 21.47 million → ~26 million units × 2.8kg), HEV +0.3kt, wind +1.8kt (165→192GW × 0.24 tonnes/MW weighted intensity), industrial robots +1.4kt (~15% annual growth), humanoid robots +0.1kt, appliances/consumer electronics +0.5kt (neutral assumption: subsidy tapering offset by overseas growth), conventional vehicles and others +1.5kt—totaling +9.0kt, implying 2027E of about 117.0kt and a CAGR of about 4.1%; versus S&P's top-down interpolation of 121.3kt (108×1.06²), the deviation is -3.6%, passing cross-validation. However, given the real-time pressure from the AC category's eight consecutive months of decline and falling wind-power unit intensity, this report cuts the 2026-2027 demand growth base case from 4-6% to 2-4%, with the 2027E demand range set at 114-121kt (midpoint ~117kt); if domestic AC sales decline 10-20% for the full year, that alone would drag total demand by 1-4 percentage points.

On inflection-point language: humanoid robot mass production (a fully quantifiable chain: shipments × per-unit usage) contributes <0.2% within the 2027 window—a long-dated option; the real demand profile today is "steady EV volume growth + permanent magnet substitution driven by new efficiency standards" offsetting "AC fading + declining wind-power intensity"—moderate totals, dramatic structural shifts.

I3 Supply: Quota Discipline, Myanmar Elasticity, and Overseas Rebuilding

3.1 Mining Landscape: China at 69%, With Extremely High Policy Content

China's quotas by year (MIIT/MNR, REO basis): 2023 mining 255,000 tonnes (+21.4%) / separation 230,000 tonnes; 2024 mining 270,000 tonnes (+5.9%, rock-type 250,900 + ion-adsorption 19,150) / separation 254,000 tonnes (+10.4%); not published since 2025—Reuters reports mining of 270,000 tonnes and separation of 254,000 tonnes, both flat with 2024; no official figure for 2026 through October. A two-group monopoly structure: Northern Rare Earth holds about 75% of light rare earth quotas, while China Rare Earth Group has a 100% monopoly on ion-adsorption (medium-heavy rare earth) quotas, locked at 19,150 tonnes/year with zero growth since 2018.

Three supply disruptions are materializing: ① Myanmar's 2025 output was 22,000 tonnes (-19%, USGS), and China's Jan-Aug imports of rare earth oxides from Myanmar fell -37% YoY; however, since March 2025 the local authorities have allowed stockpile exports with taxation and mining has expanded into newly controlled areas (Reuters/Stimson)—restart elasticity can be awakened by price at any time; ② MP stopped concentrate shipments to China from April 2025 (China's metal ore imports from the US fell -57.6% in 2025 and went to zero after August), removing US ore from China's supply pool; ③ the Mengkang project in Laos was suspended in August 2026 and Laos plans to cut raw ore exports, shrinking the medium-heavy rare earth replenishment pool.

3.2 Cost Curve and Incentive Price: Current Price Is Far Above the Incentive Line

(The chart above is an illustrative curve built on public breakeven and incentive-price anchors: China's industry-wide cost of roughly USD 50/kg implies widespread profitability (Huatai Securities basis), with the Bayan Obo associated-ore system at the lowest global cost percentile; Myanmar's ion-adsorption restart incentive price is about USD 60-75/kg (inferred from price-volume elasticity: exports to China reached 41,700 tonnes in the high-price year 2023, while output fell -19% in the low-price year 2025); overseas new projects carry high marginal costs—Aclara Penco's unit production cost is USD 76.3/kg (PEA, October 2026); the US DoD's ten-year floor price of USD 110/kg for MP and Lynas is policy confirmation of the overseas incentive/breakeven upper bound.) At the current price of about USD 104/kg, there is roughly a 40% excess margin above Myanmar's incentive line, and Myanmar can ramp up within months—this is the biggest soft spot in the bulls' balance sheet.

3.3 Overseas Expansion Pipeline: Limited Increment Before 2027; The Landscape Shifts by 2030

Lynas: the Mt Weld expansion was completed at end-2025; FY26 (ended June 2026) NdPr output was 7,260 tonnes, ramping toward 12,000 tonnes/year nameplate; the Malaysia heavy rare earth separation facility is under construction (budget revised up from AUD 180 million to AUD 294 million). MP: 2025 NdPr output of 2,599 tonnes (+101%), targeting a ramp to 500 tonnes/month by end-2026; the 10X magnet plant (10,000 tonnes/year) targets startup in 2028. Solvay's magnet-grade NdPr line at La Rochelle started up in April 2025 (small scale); Arafura Nolans (19,500 tonnes REO/year) is planned for around 2030. S&P estimates overseas NdPr output will rise from about 12kt in 2025 to about 81kt by 2030 (nearly 7x), then covering roughly 60% of global demand—in the short term (before 2027) overseas supply poses no marginal pressure, but it is a long-term sword hanging over China's resource-end rents.

I4 Supply-Demand Balance and Prices: Praseodymium-Neodymium Priced Under Policy Rent

4.1 Balance Sheet: The Deficit Is "Assumption-Driven"; Sensitivities Must Be Laid on the Table

Supply methodology reconciled: China's quota of 270,000 tonnes REO × NdPr allocation of about 20% ≈ 55kt of NdPr from domestic ore; adding imported ore processing and recycling → SPM basis China's praseodymium-neodymium oxide output: ~88,000 tonnes in 2024 / ~95,000 tonnes in 2025 / ~87,000 tonnes in 2026E (Jan-May cumulative -18% YoY, due to export controls + Myanmar contraction + Laos suspension); overseas is Lynas (FY26 7.26kt) + MP (2.6kt in 2025, ramping) + Solvay small-scale + recycling of about 3.5kt.

Sensitivity (critical): if the full 3.6% upside in S&P's broader demand basis materializes (reverting to the bottom-up basis) + a 6% quota increase in 2026 (+3.2kt), the 2026E deficit narrows from -13.2kt to about -5.9kt (-5%); under a demand-growth cut to 2-4%, the 2027E deficit is about -8 to -12kt. In other words, "severe shortage" and "tight balance" are separated by nothing more than an unpublished administrative number. The counter-check: the overseas CIF price of about USD 95/kg in August 2026 has already fallen below the US DoD floor of USD 110/kg (Benchmark attributes this to "ex-China supply glut, limited demand")—the global (non-China) market is not short; the domestic price of about USD 104/kg embeds a policy rent premium of about 9.6%.

4.2 Prices: Mid-Cycle in the Third Cycle, 56th Percentile

Historical cycle template: the last full cycle ran from a trough of RMB 267,500/tonne in 2020-03 to a peak of RMB 1.095-1.115 million/tonne in 2022-02 (+317%, 23 months up) → trough of RMB 365,700/tonne in 2024-03 (-67%, 24 months down), the whole cycle about 48 months. This cycle: trough of RMB 365,700/tonne in 2024-03 → peak of about RMB 890,000/tonne in 2026-02 (+143%, 23 months) → a subsequent drawdown of -17% to RMB 739,000/tonne (2026-10-19, Baichuan Yingfu; about USD 104.1/kg), consolidating at high levels of 700-760k for 8 months. Inventory is the tightest link globally: visible global inventory is only about 23 days of use (2026-05), at a historical low—but low inventory is a double-edged sword: with downstream purchasing on a just-in-time basis and no channel reservoir, a supply recovery would see the downside equally unbuffered.

4.3 Base-Case Price Path and Pricing Framework

Pricing framework: incentive-price floor (China industry-wide ~USD 50/kg ≈ RMB 360,000/tonne for widespread profitability; Myanmar restart incentive USD 60-75/kg ≈ RMB 430,000-530,000/tonne) + policy anchor (US DoD floor of USD 110/kg ≈ RMB 780,000/tonne) + balance direction (base-case deficit -5% to -13%, depending on quota assumptions) + inventory at a 23-day low; upper bound is the 2022 historical peak of about RMB 1.115 million/tonne. Base-case path (12 months): 2026Q4 720-760k → 2027Q1 730-790k → 2027Q2 740-820k → 2027Q3 750-850k RMB/tonne, midpoint about 760-780k RMB/tonne. Key variables in order of importance: ① announcement of 2027 quotas (zero growth confirms upside; an increase falsifies the deficit); ② expiry of the export-control suspension arrangement on 2026-11-10 (tightening/continuation → spike; relaxation → the ~9.6% domestic premium fades); ③ Myanmar's monthly exports to China (>3kt REO/month as the restart confirmation signal).

Divergence between Dy/Tb and PrNd logic: medium-heavy rare earths are directly hit by controls—after terbium and dysprosium were placed under controls in April 2025, overseas prices at one point exceeded 3x domestic (Argus European terbium USD 3,300-4,000/kg), while domestic prices were pressured by export diversion: dysprosium oxide is currently at RMB 1.41-1.455 million/tonne, -12.5% YoY; terbium oxide at RMB 6.38-6.875 million/tonne, about -7.7% YoY (both have rebounded about 15% from lows since June). Zero growth in medium-heavy rare earth quotas plus the Myanmar/Laos contraction provide medium-term support, but grain boundary diffusion technology continues to reduce magnet Dy/Tb intensity, capping the long-term demand curve.

I5 Competitive Landscape and Profit Pool: Rents Accrue to Mining, Magnet Makers Earn Processing Fees

Concentration: China's domestic mining and smelting/separation CR2 ≈ 100% (definitional note: this refers to the allocation concentration of domestic mining/separation quotas in China — quotas are issued only to the two major groups; Northern Rare Earth holds roughly 75% of light rare earth quotas and ~67% of separation quotas, while China Rare Earth Group holds a 100% monopoly on ionic clay quotas — whereas the share chart in I3 reflects a country-level production basis with China at ~69% of global mine output; the two must not be conflated); NdFeB magnet CR5 ≈ 50.4% (JL MAG 32kt + Zhonghai Yongrong/ZH Mag 30kt + Zhongke Sanhuan 25kt + Ningbo Yunsheng 21kt + Dadi Xiong 18kt = 126kt of capacity, ÷ China output of ~250kt, as of end-2024); across the full spectrum there are still 200+ companies, highly fragmented.

Profit pool distribution and migration: Price-hike rents clearly stay on the resource side — the Baogang–Northern Rare Earth concentrate related-party price reached RMB 38,769/t in 2026Q4 (REO = 50%, dry basis, ex-VAT), up 48% YoY; Northern Rare Earth's gross margin rose from 12.2% in 2025 to 15.0% in 2026H1, with net profit attributable to shareholders of RMB 2.05 billion (+120%); China Rare Earth (its medium/heavy rare earth platform) posted a 22.4% gross margin. In the magnet segment, under the "raw material pass-through + processing fee" model, raw materials account for ~70% of cost; this cycle, leaders saw gross margins rise on cheap inventory and premium-grade pricing power (JL MAG 21.7%, Yunsheng 20.8%), while commodity capacity remains locked at 12–13% margins (Sanhuan 12.5%, Zhenghai 12.5%). Migration direction (2026–2028): under low quota growth + full-source controls, profits continue concentrating on the resource side; within magnets, they concentrate among leaders holding premium-grade certifications and export licenses. The expiry of the control suspension on 2026-11-10 is the biggest watershed for profit redistribution. Two points must be stated candidly: ① Northern Rare Earth–Baogang's quarterly related-party concentrate pricing mechanism is smooth and lagging (2026Q4 up only 0.5% QoQ versus ~6% spot gains in the same period), so some mining-side profit is structurally ceded by the mechanism; ② the leaders' gross margin improvement this cycle includes procyclical inventory gains, which will recede by 3–5 percentage points when prices plateau.

Bargaining power upstream/downstream: The mining end holds an inverted-pyramid grip over the entire chain (quotas are licenses; cascade extraction technology is export-banned; only about 1/4 of overseas capacity is profitable below US$100/kg); magnet makers have weak bargaining power downstream (top automaker Tier 1s, wind turbine OEMs, appliance oligopolies) — cost-plus pricing can only pass through raw material swings, while processing fees are persistently squeezed by annual price-downs.

Return quality conclusion: Overall, this is "not an especially easy business to make money in" — real money is made by the mining duopoly (quota rents, but hinging on administrative variables; the precedent of ~17% quota CAGR in 2021–2024 shows rents can collapse at any time) and magnet leaders (premium-grade certification cycles of 2–3 years + dual-sourcing lock-ins are genuine moats). Commodity magnet capacity is a prosperity illusion (Sanhuan's revenue +24% but net margin 2.0%, ROE (H1) 0.75% — the volume and price boom has nothing to do with it).

Sector valuation position: SW Magnetic Materials PE 48.5x (52nd percentile since 2014), PB 3.44x (62nd percentile); upstream reference SW Minor Metals PE 31.6x (24th percentile), PB 3.78x (42nd percentile) (as of 2026-10-19). Sector valuation sits slightly above historical midpoint, not bubble territory, but not cheap either — rising prosperity × above-midpoint valuation means this is not a "buy blindly" position; individual names diverge sharply (JL MAG PE near 1-year lows vs sector median).

I6 Policy & Geopolitics: Control Timeline and Net Direction

China export control timeline (fact recap): Aug 2023 — gallium/germanium export controls (prelude); Dec 2023 — rare earth extraction, smelting/separation, magnet manufacturing technologies added to restricted/prohibited export catalog; Oct 2024 — Rare Earth Management Regulations take effect (total quota system codified); Apr 2025 — export controls imposed on 7 medium/heavy rare earth items: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, yttrium (magnet exports -45% YoY that month; licenses restored from August); Jul–Aug 2025 — Interim Measures on Total-Volume Control of Rare Earth Mining and Smelting/Separation bring imported ores, monazite, and secondary resources under the quota system (~92% of supply controlled); Oct 2025 — control scope extended to related equipment, materials, and rare-earth-containing items (reportedly including extraterritorial jurisdiction clauses); Nov 2025 — after China–US talks, a suspension arrangement was set, running until 2026-11-10, with no extension announced as of expiry (MOFCOM announcement page). Jun 2026 — per industry media, MP added to control list (unverified); Sep 2026 — Reuters reported some Chinese suppliers suspending shipments to the US out of prudence.

Overseas: US DoD entered a ten-year public-private partnership with MP — NdPr price floor of US$110/kg, 100% magnet offtake, 15% equity stake (2026Q2 MP realized price in the high-90s USD plus ~US$10 floor top-up); Lynas renewed its agreement with Japan's JARE through 2038 with a similar floor arrangement (2026-03); G7 committed to reducing single-country rare earth/magnet import dependence below 60% by 2030; US magnet capacity ~5,500t in 2024 and ~10kt in 2026 (still only ~5% global share).

Net direction assessment: Light rare earths (PrNd) — domestic policy rents support the price center, but overseas plans for 81kt of capacity by 2030 erode long-term share; net impact "bullish short-term, dilutive long-term." Medium/heavy rare earths (Dy/Tb) — huge overseas security premium (Europe prices at 3x+ domestic) but domestic prices suppressed as exports divert supply; net impact "internal-external divergence." For China's magnet chain — export licenses become a scarce credential (leaders benefit), but each supply-cut event delivers customers to MP/Lynas floor-price long-term contracts; controls are a source of rents and also an accelerator of chronic share erosion.

I7 Key Debates and Scenarios

D1 Deficit authenticity: quota discipline vs Myanmar elasticity + quota expansion

• Bulls: Quotas flat in 2025, implied zero growth in 2026 (corroborated by concentrate related-party price up only 0.5% QoQ, indicating no volume expansion) + full-source controls covering 92% + inventory at a 23-day historic low → the -11.5%~-13.1% deficit materializes, price center moves up.
• Bears: "Zero quota growth" is an assumption, not a fact (precedent of ~17% quota CAGR in 2021–2024); current price of US$104 is 40%+ above Myanmar's incentive line of US$60–75; Myanmar can restart within months (4.17万吨 in 2023); overseas CIF has already broken the US$110 floor price — the world is not short.
• Tracking indicators: 2027 quota announcement (or reverse-engineered from concentrate related-party price), monthly Myanmar exports to China (>3kt REO as the signal), social inventory days, ex-China CIF gap versus US$110.

D2 Direction and cost of controls: three-way fork at the 11·10 expiry

• Bulls: Tightening/continued suspension → license premium and Dy/Tb overseas prices re-enact upward moves; the bull scenario repeats February 2026's spike.
• Bears: Extension or relaxation → domestic ~9.6% premium falls immediately; and regardless of tightening or loosening, controls accelerate G7 de-China-ification (overseas NdPr 12kt in 2025 → 81kt in 2030), diluting the terminal value of China's 94% magnet share.
• Tracking indicators: MOFCOM announcements around 11-10, monthly magnet export volumes, overseas long-term contract signings (MP/Lynas orders).

D3 Demand quality: air conditioners' eight straight declines vs EV base + efficiency rules + robotics option

• Bulls: EV penetration 25% → 40%+ by 2030, China's Jan 2026 permanent-magnet motor efficiency rules, robots doubling by 2030 — structural engines relay.
• Bears: The 47%-share appliance/small motor category has declined for eight straight months (Jul 2026 domestic sales -30.2%), wind's shift to doubly-fed designs cuts per-unit usage -14%, US$104 prices trigger dematerialization (BMW Gen 6 / Renault-Valeo rare-earth-free motors entering production 2027, Tesla next-gen platform), demand CAGR may be only 2–4%.
• Tracking indicators: Industry Online air conditioner production schedules, global monthly EV sales, humanoid robot shipments, magnet plant utilization.

Scenarios and probabilities (12 months, PrNd oxide)

Probability-weighted expected return is approximately +2.3% (0.52×+2.8% + 0.30×-18.8% + 0.18×+36.0%) — odds are neutral to thin; position decisions should hinge on trigger conditions rather than point forecasts. Add-to-position trigger: price falls back to ~RMB 680k/t (roughly the 45th percentile) with the deficit thesis unrefuted. Trim signals: quota increase announcement / suspension extended with expansion of exemptions / Myanmar monthly exports to China persistently >3kt REO / ex-China CIF flagged "surplus" for two consecutive quarters.

Catalyst calendar

I8 Investment Implications and Beneficiaries

Prosperity Direction × Business Quality Decision Matrix

Value trap logic spelled out: Two points in the bottom-right quadrant — Zhongke Sanhuan (industry prosperity is rising, but commodity capacity + export exposure leave net margin at only 2.0%; the price-hike dividend largely bypasses it) and MP Materials (industry upcycle + policy floor, yet still loss-making today; returns depend entirely on administrative support — the valuation is a policy option, not an earnings asset). "Bullish on the cycle ≠ worth buying" is most典型 — is most typified by these two names. No turnaround candidates in the top-left; core allocation sits in the top-right (the resource duopoly + magnet leaders).

Beneficiaries / Avoids

Beneficiaries:

• Northern Rare Earth (600111): Light rare earth quota leader and the biggest beneficiary of mining-side rents (related-party concentrate price +48% YoY pass-through); PB 4.85 at the 10-year 48th percentile, earnings doubled while the stock sits at a one-year low; biggest risks are quota expansion and the related-party pricing mechanism.
• China Rare Earth (000831): Sole medium/heavy RE quota system + Dy/Tb price elasticity + expected group asset injection; even in the bear scenario, it benefits from the structural hard constraint of medium/heavy RE supply contraction.
• JL MAG (300748): The only magnet player with "volume + margin both rising"; robotics/automotive premium grades + export license premium; PE(TTM) 38.2 near 1-year lows; monitor true gross margin ex-inventory gains.

Avoids:

• Zhongke Sanhuan (000970): Net margin 2.0%, ROE (H1) 0.75%; commodity capacity squeezed from both ends, prosperity dividend leaks away.
• ZH Mag / Zhenghai (300224): Gross margin 12.5%; automaker annual price-downs squeeze profits — mediocre risk/reward until premium-grade volume is validated.
• Shenghe Resources (600392): High beta but operating cash flow -RMB 640m and inventory expansion; deepest drawdown when the price-hike tide recedes (cautious rather than absolute avoid).
• MP Materials (MP.US): High policy dependence, currently loss-making; if the suspension arrangement is relaxed, the scarcity of its floor-price long-term contract declines.

Scenarios × Names

Key Risks

1. Quota expansion: 2027 quotas raised ≥3%, deficit assumptions cut by 50%+, price back below RMB 650k, double earnings/valuation kill for the magnet sector at 48.5x PE;
2. Myanmar restart exceeds expectations: monthly exports to China persistently >3kt REO, deficit filled within months;
3. Controls relaxed: 11·10 suspension extended with expanded exemptions, domestic ~9.6% premium falls to within 5%;
4. Demand refuted: AC declines extend into 2027, EV growth downshifts, demand CAGR falls below 2%;
5. Long-term share dilution: overseas 81kt capacity materializes by 2030, eroding China's resource rents and 94% magnet share simultaneously — beyond this report's 12-month view, but long-duration pricing must discount it.

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Data and definitions: Prices in this report are in RMB 万元/ton (PrNd oxide domestic spot; Baichuan Yingfu/SMM/Asian Metal basis) and USD/kg (NdPr international basis, converted at 7.10); the balance sheet is in NdPr oxide kilotonnes, with supply including estimated components (±5kt margin of error); China's 2025/2026 rare earth quotas are based on media reports (Reuters/Cailian Press etc., not officially published), and all conclusions dependent on that assumption have their sensitivity flagged in the text. Key data sources: S&P Global NdPr Market Report (2026-08), USGS Mineral Commodity Summaries 2026, IEA, GWEC, company disclosures from Lynas/MP/Northern Rare Earth/JL MAG etc., MOFCOM export control announcement pages, Benchmark Mineral Intelligence.