Event: Starting from November 3rd, Tengchong Customs in Yunnan has been closed, and Myanmar's mixed carbonate rare earth ore cannot be exported to China, causing an impact on rare earth supply, especially for medium and heavy rare earths. Currently, the China Myanmar port has not yet resumed normal operations.

Key investment points:

Myanmar's import of minerals is blocked, causing a significant impact on the supply side. From January to October 2018, the total import volume of mixed rare earth carbonate in China was 27160 tons, of which 23949 tons were imported from Myanmar, accounting for 88%. The rare earth ores imported from Myanmar are mainly ionic rare earth raw ores, which are currently the main source of domestic supply of medium and heavy rare earth ores, accounting for more than 50% of the domestic supply. This directly affects the domestic production of medium and heavy rare earths, leading to changes in their prices. Myanmar's rare earth ore has a rare earth content of about 85%, with praseodymium neodymium content of 26-28%, dysprosium content of 3.5-4.5%, and terbium content of 0.6-0.8%. Based on the total amount of imports from Myanmar in the first 10 months, Myanmar's imports of praseodymium neodymium oxide are 5496 tons, dysprosium oxide is 814 tons, and terbium oxide is 142 tons. Dysprosium terbium imports account for nearly 50% of the total domestic market demand.

Myanmar mines are blocked, separation companies are undergoing maintenance, and Linus production is lower than expected, resulting in a possible halving of praseodymium neodymium oxide supply in December. Domestically, according to Baichuan Information, sources have revealed that in December 2018, rare earth separation companies in Baotou and rare earth separation plants in Sichuan announced production shutdowns for maintenance, directly affecting a monthly decrease of about 1500 tons in praseodymium neodymium oxide production. In terms of imported minerals from Myanmar, it has been confirmed that the China Myanmar ports have not yet resumed normal operations. For example, rare earth minerals were still unable to be imported normally in December. Based on a monthly import of 2000 tons of Myanmar minerals, the production of praseodymium neodymium oxide decreased by about 450 tons, dysprosium oxide decreased by about 70 tons, and terbium oxide decreased by 10 tons. In terms of the market, in December 2018, Linus announced a decrease of 400 tons in the production of praseodymium neodymium oxide. According to the above data statistics, the global production of praseodymium neodymium oxide will decrease by about 2350 tons in December. Currently, the monthly consumption of praseodymium neodymium oxide is around 5000 tons, and the production has decreased by nearly 50%, which will inevitably support the price increase of praseodymium neodymium oxide.

The rectification of rare earths by eight ministries has resumed, and the supply of black rare earths is difficult to make a comeback. On October 30th, eight ministries including the Ministry of Industry and Information Technology and the National Development and Reform Commission issued a notice to jointly carry out further rectification in eight provinces and cities where rare earths are mainly produced nationwide. We believe that even if this inspection does not cause many companies to shut down on the supply side, it will conduct another verification and control of black rare earths to avoid a resurgence of black rare earth supply.

Recommend the target. It is recommended to pay attention to the abundant resources in the rare earth sector and the northern rare earths with light rare earth standards.

Risk Warning: The risk of relaxed environmental inspections and a significant decline in downstream demand.