Safety First: From Resources to Manufacturing

Key minerals are crucial to industrial competitiveness and national security, and have become a frontier battlefield of geopolitical competition. With the rise of anti-globalization sentiments, the intensification of geopolitical frictions, and the strategic restructuring of global industrial chains, resource security is vital. The proactive intervention of resource-rich countries in supply is expected to bring sustained supply constraints and strategic premiums to key minerals. Among key minerals, the small metals represented by rare earths, cobalt, and tin are characterized by low production and high supply concentration. If major supplying countries tighten supply constraints, the global supply may be significantly affected. It is recommended to pay attention to the allocation opportunities arising from changes in the supply and demand pattern of small metals. From the perspective of the industrial chain, when a country has sufficient influence over global supply, it should convert its share advantage into global pricing power and profits. In the long run, the process of China's manufacturing profits in the global market converging towards value-added ratios is the process of stock market capitalization doubling. Considering the balance of short-term profit realization, mid-term economic recovery, and long-term narrative logic, the current focus remains primarily on the upstream resource sector and traditional manufacturing. It is important to closely monitor the recent export review measures in China, which are no longer limited to strategic resources represented by rare earths. Some areas related to national security and manufacturing technology advantages are not just a single commodity but are also the lifeblood of the industry and China's relative competitive advantage. Manufacturing safety also needs attention. The Strategic Value of Key Minerals is Becoming Increasingly Prominent and Related to National Security Against the backdrop of global energy transition, the widespread application of clean energy technologies such as wind power, photovoltaic power generation, and electric vehicle batteries is accelerating the shift of countries from fuel-intensive to mineral-intensive energy systems. Compared to traditional industries, the emerging clean energy industry is more dependent on key minerals represented by lithium, cobalt, nickel, rare earths, tellurium, indium, and gallium in terms of development and utilization methods, which means that key mineral resources will play an increasingly important strategic role in the global energy transition process. The consumption of key mineral resources will increase significantly Source: International Energy Agency (IEA) forecast, CITIC Securities Research Department With the enhancement of the strategic value of key minerals, phenomena of resource nationalism, manifested in forms such as export restrictions, tax increases, foreign investment restrictions, resource nationalization, and the establishment of OPEC-like monopolistic alliances, are gradually emerging in emerging economies. Resource-rich countries are expected to inject strategic premiums into key minerals through proactive supply-side interventions, thereby breaking the long-standing weak position of resource-rich countries in the global value chain regarding bargaining power, which is related to national security. Five Policy Manifestations of Resource Nationalism Source: Journal "World Knowledge" 2024 Issue 4 "The Rise of a New Round of Resource Nationalism" (Wang Yongzhong), CITIC Securities Research Department Analysis Framework Diagram of Resource Country Mineral Supply Constraint Policies Source: CITIC Securities Research Department From a country perspective, in Indonesia, nickel export controls have been effective in value retention, and in the future, Indonesia is expected to further strengthen supply constraints on resources such as nickel and tin by adjusting production quota policies and cracking down on illegal mining. In Democratic Republic of the Congo, shifting from a cobalt export ban to a more refined and flexible export quota system is expected to provide continuous support for cobalt prices. In the US and Europe, although there is an intention to promote diversification and localization of critical mineral supplies, multiple difficulties related to resources, technology, funding, and regulation may make it difficult to achieve in the short term. Examples of Overseas Key Mineral Resource Countries Strengthening Local Resource Protection in Recent Years Source: Xinhua News Agency, Ministry of Commerce of China official website, MiningWeekly official website, CITIC Securities Research Department Demand countries such as the US and Europe are more concerned about supply chain diversification and security issues Source: CITIC Securities Research Department Supply of Minor Metals Affected More by Policies Among critical minerals, minor metals represented by rare earths, cobalt, and tin have the characteristics of low production and high supply concentration, with the top five supplying countries accounting for an average of over 85% of global production. If major supplying countries tighten supply constraints, the global supply may be significantly affected. Due to resource scarcity and high supply concentration, the supply of key minor metals is more easily constrained by policies Source: Compiled by CITIC Securities Research Department Global annual production of minor metals and precious metals is significantly lower than that of ferrous metals and base metals Source: USGS, CITIC Securities Research Department Note: Survey time is 2024 The production concentration of small metals is generally high by country Source: USGS, CITIC Securities Research Department Note: Survey time is 2024 Seize relevant investment opportunities Specifically: 1. Rare Earths: Comprehensive upgrade of regulatory intensity, recommend strategic allocation value in the industry chain On October 9, 2025, the Ministry of Commerce, in conjunction with the General Administration of Customs and other departments, issued multiple announcements to implement export controls on rare earth-related items, technologies, equipment, and raw materials. The scope of control has expanded from domestic to overseas, with new export controls on technologies and production line assembly, debugging, and maintenance related to the recycling of secondary rare earth resources, essentially covering the entire rare earth industry chain, and for the first time involving the semiconductor and artificial intelligence fields. The rigidity of rare earth supply may further strengthen. On the demand side, the traditional peak season for rare earths is approaching. We expect global demand for neodymium-iron-boron to reach 329,000 tons by 2027, corresponding to a CAGR of 13% from 2024 to 2027. We estimate that the CR4 of the neodymium-iron-boron industry in 2024 is about 29%, and with the expansion of leading companies, it is expected to rise to 42% by 2026. Overall, the supply-demand pattern may continue to improve, and rare earth prices are expected to stabilize and progress. We anticipate that the performance of the rare earth industry chain may improve quarter by quarter in the third and fourth quarters of this year, and we continue to recommend the strategic allocation value of the rare earth industry chain. 2021-2025 Global Rare Earth Supply and Demand Balance (10,000 tons) Source: Ministry of Industry and Information Technology, General Administration of Customs official website, USGS, Lynas official website, "Analysis of the Rare Earth Market Situation and Supply Pattern" (by Chen Lu, Li Huaiguo, and Liang Lixia), CITIC Securities Research Department forecast 2. Cobalt: Global supply may be far below normal levels, cobalt prices may rise strongly Since February of this year, the government of the Democratic Republic of the Congo has issued multiple cobalt export policies, from export bans to extensions of bans, and then to a cobalt export quota system, with cobalt export quotas for 2026-2027 only being 44% of annual production. The cobalt export quota system demonstrates the Congolese government's determination to control global cobalt prices. We expect the government to flexibly adjust cobalt supply to stabilize cobalt price fluctuations in the long term, benefiting the healthy development of the global cobalt industry. On the supply side, we expect cobalt exports from the Democratic Republic of the Congo to be 55,000 tons in 2025, while we anticipate Indonesian cobalt production capacity to increase by 10,000 tons annually. Comprehensive calculations show that global cobalt supply for 2025-2027 will be 135,000/187,000/197,000 tons, significantly down from the global cobalt annual production in 2024. On the demand side, we expect global cobalt demand to be 257,000/275,000/294,000 tons for 2025-2026 The export quota policy of the Democratic Republic of the Congo may lead to global cobalt supply levels being significantly lower than normal from 2025 to 2027, with expected supply shortages of 122,000/88,000/97,000 tons, and cobalt prices are likely to rise strongly. We expect companies engaged in cobalt smelting in Indonesia and those with mines in the Democratic Republic of the Congo to fully benefit from the rise in cobalt prices. 3. Tin, Nickel, Copper: Supply is greatly affected by recent developments in Indonesia Since September, the Indonesian government has implemented several stringent regulatory measures in the nickel mining industry and cracked down on illegal tin mining activities, with the president calling on the armed forces to safeguard the country's natural resources. Additionally, the suspension of operations at the Grasberg copper mine in Indonesia has had a greater-than-expected impact on copper supply, and recent developments in Indonesia have significantly affected the global supply of metals such as tin, nickel, and copper. We expect the Indonesian government to impose long-term strict regulations on its mineral industry, suppressing the growth rate of tin, nickel, and copper production in Indonesia, which is likely to drive related metal prices steadily upward. 4. Tungsten: Tightening mining indicators may lead to strong price performance Under the constraints of total mining control indicators for tungsten, the development of tungsten resources in our country is gradually becoming reasonable and orderly, with the overproduction rate relative to the total mining indicators rapidly decreasing from 54.9% in 2015 to 11.4% in 2024. There are limited new tungsten mining projects globally, making it difficult to release a large amount of tungsten resources in the short term. We expect global tungsten concentrate supply to be 85,000 metal tons in 2026. Domestic tungsten industry supply-demand balance: We expect the total domestic tungsten demand (excluding exports) to reach 73,102 metal tons in 2025, a year-on-year increase of 6.0%. On February 4, 2025, the Ministry of Commerce and the General Administration of Customs decided to implement export controls on tungsten, molybdenum, tellurium, bismuth, and indium-related items. We expect tungsten exports to decline by 25% year-on-year in 2025, resulting in a total domestic tungsten demand (including exports) of 87,355 tons, corresponding to a supply-demand gap of 2,301 tons in the tungsten industry. This supply-demand gap will provide strong support for tungsten prices, which are likely to perform strongly. We expect the price of black tungsten concentrate (65%) to rise to 275,000-300,000 yuan/ton in 2025. Source: Antaike, Tungsten Molybdenum Cloud Business, China Tungsten Industry Association, CITIC Securities Research Department forecast 5. Chromium: Expected to welcome a new round of prosperity cycle under the joint catalysis of supply and demand Metal chromium is mainly used as an alloy additive in high-temperature alloys, special alloy steels, sputtering targets, and other fields. Benefiting from the growth in demand from end-user industries such as military, aerospace, and gas turbines, its strategic value is gradually becoming prominent, with rapid growth in domestic and international demand. The supply pattern of metal chromium is concentrated, with the core barrier being the production capacity of raw material chromium salts, which is expected to exceed 80% in China by the end of 2024. Overseas, currently, only the UK, France, and Russia, apart from China, have metal chromium production capacity, with Russian capacity being significantly restricted in terms of raw material procurement and product shipment due to sanctions, leading to an overall tight supply of global metal chromium Optimistic about the upward trend of metal chromium driven by supply and demand, product prices are expected to continue rising. Manufacturing Safety Also Needs Attention It is important to closely monitor the recent export review measures in China, which are no longer limited to strategic resources represented by rare earths. The export licensing requirements announced on October 9 cover lithium batteries with an energy density of ≥300Wh/kg, as well as key materials and equipment. This export control marks the first time China has implemented a "technical-level" review in the field of new energy manufacturing equipment. Although export controls do not equate to a ban on exports, certain areas related to national security and manufacturing technology advantages are not just commodities; they are the lifeblood of the industry and China's relative competitive advantage, which cannot be easily "cheaply sold" or subjected to unconditional technology transfer. China exhibits a tendency of "involution and externalization" in many manufacturing sectors where it has global competitive advantages, failing to convert share advantages into profits. Despite China's strong advantages in many manufacturing sectors, in the context of rising anti-globalization trends, even if European and American countries do not directly participate in traditional manufacturing investments, countries like India, Vietnam, Indonesia, the U.S., and South America are willing to increase their investments in these areas. Sooner or later, China will inevitably face competition from these overseas supply chains. Therefore, in addition to strategic resource products, the "shovels" of manufacturing also need protection. In key areas, whether in traditional manufacturing represented by resources and chemicals, or in emerging manufacturing such as lithium batteries, photovoltaics, electric vehicles, and drones, establishing a sound export review system is essential for ensuring the long-term security of the industrial chain, promoting the survival of the fittest among enterprises, and facilitating mergers and acquisitions. This will help convert the share and technological advantages of Chinese companies into substantial profits, supporting leading quality companies to continue strengthening and establishing a "moat" through innovation (rather than involution). During the execution of this long-term strategy, numerous investment opportunities in manufacturing may emerge, and companies in these sectors generally have low profit margins and are valued at relatively low levels in the market, which represents new investment clues that cannot be ignored in the future. In the long run, the process of China's manufacturing profit share aligning with value-added share globally is the process of stock market capitalization doubling. China's total manufacturing output and value-added are globally leading Source: OECD TiVA database, VoxEU, CITIC Securities Research Department Recently, China has implemented export controls on lithium batteries, anode materials, and superhard materials. From an industry perspective, these are sectors where China holds a dominant position in global supply. The recent export controls and export licensing system not only aim to fill loopholes and improve systems to protect national interests but also help to support prices externally and accelerate the elimination of backward production capacity internally. Leading companies with compliance capabilities and global operational experience may gain more stable overseas shares and better profit levels. Considering the balance of short-term profit realization, mid-term economic recovery, and long-term narrative logic, the current focus remains primarily on the upstream resource sector and traditional manufacturing. ** Recent Export Control Policy Overview in Our Country Source: Ministry of Industry and Information Technology, State Administration for Market Regulation, Ministry of Commerce, General Administration of Customs, CITIC Securities Research Department Impact Chain of Export Control Policies on Industries Source: CITIC Securities Research Department Representative Industries in China with Strong Global Absolute Share and Technological Advantages Source: Ministry of Industry and Information Technology, State Administration for Market Regulation, Ministry of Commerce, General Administration of Customs, CITIC Securities Research Department Article Author: CITIC Securities Research, Source: CITIC Securities Research, Original Title: "Safety First: From Resources to Manufacturing" Risk Warning and Disclaimer The market has risks, and investment requires caution. 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