Supply Revolution: Major Production Cuts and Shutdowns in Rare Earth Separation Expected in December

In December 2025, the rare earth industry is undergoing a silent yet profound transformation—large-scale production cuts or even shutdowns for rectification are expected among rare earth smelting and separation enterprises across many regions in China. This is not a market-driven adjustment but a supply-side restructuring driven by stricter quota controls, intensified environmental inspections, and tighter qualification reviews.

At the same time, Myanmar’s Kachin State has explicitly demanded a suspension of rare earth mining by the end of 2025. As an important supplementary source of light rare earths for China, this move will directly reduce global rare earth supply by approximately 8%. Under the dual pressures of "domestic production cuts" and "overseas supply disruption," a short-term shortage of light rare earths has become almost inevitable.

Rare earths, often hailed as the "vitamins of industry," are transitioning from an old cycle of "volume growth and price stability" to a new phase characterized by "supply rigidity and price revaluation." The catalyst for this market shift lies precisely in the previously underestimated midstream smelting and separation segment.

It is worth noting that China controls over 90% of the global rare earth refining capacity. However, this segment has long been regarded as a "tough and low-margin business" due to scattered capacity, environmental pressures, and thin profit margins. Now, with policymakers tightening regulations, outdated capacity is being phased out at an accelerated pace. Compliant industry leaders are poised to gain unprecedented pricing power and profit margins.

Amid this opportunity driven by "supply contraction," which listed companies are truly positioned to benefit from the value revaluation? We have filtered out peripheral players to focus on core companies with legitimate quotas, integrated operations, actual production capacity, and pricing power.

I. Upstream: Resources Remain Key, but Value Is Shifting to the Midstream
China dominates the global upstream rare earth resources. Baotou Steel controls the world’s largest rare earth mine at Bayan Obo and serves as the exclusive supplier of rare earth concentrates to Northern Rare Earth. Meanwhile, Northern Rare Earth, China Rare Earth, and Guang Sheng Nonferrous Metals represent the state-backed platforms for light rare earths and medium-to-heavy rare earths.

Notably, in the fourth quarter of 2025, the associated transaction price for rare earth concentrates between Baotou Steel and Northern Rare Earth has been raised to ¥26,205 per ton—a sharp increase of 37.13% quarter-on-quarter. This is not only a signal of cost transmission but also the beginning of a restructuring in pricing logic across the entire industry chain.

However, the uniqueness of this round of market dynamics lies in the fact that the supply constraint is not centered on mining but on smelting. Even with access to raw ores, without compliant smelting quotas, they cannot be converted into effective supply. Therefore, companies that possess resources but lack downstream processing capabilities have limited flexibility.

The true beneficiaries are integrated giants with both mining and compliant smelting capacity.

II. Midstream: Smelting and Separation—An Underestimated "Bottleneck" Enters the Spotlight

【Light Rare Earth Leader】
Northern Rare Earth (600111.SH)—The world’s largest light rare earth giant.
With stable raw material supply from the Bayan Obo mine, the company possesses an annual capacity of 100,000 tons for magnetic alloys and a complete smelting and separation system. Amid expectations of widespread industry shutdowns in December, the scarcity of its compliant capacity will translate directly into pricing power. Analysts estimate its stock has around 30% upside potential.

【Medium-to-Heavy Rare Earth Leaders】
China Rare Earth (000831.SZ)—The consolidation platform for medium-to-heavy rare earths.
As a core listed entity under China Rare Earth Group, the company focuses on high-value products such as terbium oxide, dysprosium oxide, and europium oxide, with an annual smelting and separation capacity of approximately 10,000 tons. Against the backdrop of already scarce medium-to-heavy rare earths, supply contraction will further amplify its resource premium. Some analysts even project a potential upside of up to 100%.

Guang Sheng Nonferrous Metals (600259.SH)—The sole licensed rare earth operator in Guangdong.
The company is accelerating its integration into China Rare Earth Group and plans to rename itself "China Rare Nonferrous Metals," signaling a strategic upgrade. Its 8,000-ton annual smelting and separation capacity is entirely focused on medium-to-heavy rare earths. Amid tightening policies, its regional monopoly advantage will become increasingly prominent, with valuation expected to recover by 50%–100%.

【Globally Diversified Resource Holder】
Shenghe Resources (600392.SH)—Dual drivers from domestic and international operations.
Beyond its domestic smelting and separation capabilities, the company completed the 100% acquisition of Australia’s Peak Rare Earths in September 2025, with planned smelting capacity reaching 60,000 tons annually. This "overseas resources + domestic processing" model holds significant strategic value in an era of increasing supply chain security.

【Emerging Circular Economy Player】
Huahong Technology (002645.SZ)—The leader in rare earth recycling.
As one of the world’s top four suppliers of praseodymium-neodymium, the company’s annual capacity of 12,000 tons for recycled rare earth oxides serves as a critical supplement to primary ores. When primary supply is constrained, the strategic importance of recycled materials will rise significantly. Analysts estimate its 2026 net profit at approximately ¥400 million, with a current valuation below 25 times—highlighting its attractive value proposition.

In contrast, Sanchuan Wisdom (300066.SZ), while involved in rare earth recycling, has only 1,500 tons of annual capacity, accounting for less than 15% of its business. Its flexibility is limited, making it more of a thematic play.

III. Upstream Support: Small but Mighty "Hidden Enablers"
Rare earth smelting relies on key chemical auxiliary materials, and niche segments in this space are quietly benefiting:

Jinhua New Materials (301518.SZ)
Its core product, pivalic acid, is a key raw material for high-efficiency rare earth extractants, positioning it as a leader in this niche segment. Analysts project a target market capitalization of ¥24 billion by 2027.

Fengyuan Co., Ltd. (002805.SZ)
Oxalic acid is essential for rare earth precipitation processes, and the restart of overseas rare earth mines will drive demand.

Longhua Technology (300263.SZ)
Extracting agents produced by its subsidiary are widely used in rare earth hydrometallurgy, with relatively high technical barriers.

While these companies may not be large in scale, they are indispensable for achieving industrial chain autonomy and control.

IV. Downstream Magnetic Materials: Short-Term Pressure, Long-Term Potential
Rare earth permanent magnets (especially NdFeB) account for over 90% of the consumption value of rare earths, representing the true "value hub." Leading magnetic material companies such as JL MAG Rare-Earth, Zhenghai Magnetic Materials, Ningbo Yunsheng, Zhongke Sanhuan, and Da Di Bear are deeply embedded in high-growth sectors like new energy vehicles, wind power, and humanoid robotics.

In the short term, rising raw material prices may squeeze profit margins. However, with strong customer loyalty and cost-pass-through mechanisms (such as quarterly price adjustments and long-term agreement linkages), profits are expected to recover quickly once prices stabilize. Notably, JL MAG Rare-Earth plans to expand its magnetic material capacity to 60,000 tons by 2027 and has already established production lines for embodied robotic motor rotors. Da Di Bear has even begun small-batch shipments to humanoid robotics customers.

Therefore, magnetic material companies are not the direct beneficiaries of this round of supply contraction but will serve as the core carriers in the latter half of the cycle.

V. Conclusion: Not Every "Rare Earth Stock" Is Worth Chasing, but True Leaders Are Being Revalued
This time, the narrative for rare earths has changed.

It is no longer about "speculating on mines" but about "controlling production."
It is no longer about "resource dominance" but about "smelting supremacy."

As policies strongly compress inefficient supply, compliant capacity becomes the scarcest asset. Companies like Northern Rare Earth, China Rare Earth, Guang Sheng Nonferrous Metals, Shenghe Resources, and Huahong Technology—armed with "legal licenses, actual production capacity, and industrial depth"—are standing at the starting point of a new round of value revaluation.

For investors, the real opportunity lies not in chasing every stock with "rare earth" in its name but in identifying the true leaders capable of maintaining stable production amid turmoil, raising prices amid contraction, and consolidating amid chaos.

After all, in the world of strategic resources, whoever controls the "transformation" stage holds the key to pricing power.