China Securities Co.,Ltd.: Strategic value of rare earths is becoming prominent; recommend seizing the allocation window where the cycle bottom and long-term growth resonate.

China Securities Co.,Ltd. released a research report stating that under the global energy transition and the wave of new quality productive forces, lithium, cobalt, nickel, and rare earths are the underlying strategic cornerstones of the new energy industry. In the short term, supply elasticity of lithium, nickel, and other varieties is recovering, exerting pressure on prices; but from a long-term perspective, rising global resource nationalism and constrained capital expenditure on new upstream supply mean the resource-side expansion ceiling is clear and long-term supply elasticity is insufficient. The demand side shows structural divergence: domestic new energy vehicle growth is slowing, the energy storage industry is on the eve of an explosion, and emerging applications such as Siasun Robot&Automation and the low-altitude economy are opening up long-term incremental space. Short-term oversupply does not change the long-term industry prosperity mainline. Lithium, cobalt, nickel, and rare earth resources have high geographic concentration, and supply chain autonomy and controllability is the core proposition. Resource endowments and whole-industry-chain integration capabilities build the core barriers of leading companies. It is recommended to seize the allocation window where the cycle bottom and long-term growth resonate. The main views of China Securities Co.,Ltd. are as follows: Lithium: Supply elasticity returns, price center moves lower Stimulated by high lithium prices, 2026 output from several major producing regions exceeded expectations or guidance, while overseas mines that had suspended production resumed operations and capital expenditure recovered, providing future supply elasticity. Policy disturbances to supply in 2026 will weaken in 2027, African lithium mines will restore elasticity, and Jiangxi lepidolite will resume growth; Sichuan West lithium mines will be the largest future production growth region, with concentrated releases after 2028. On the demand side, domestic demand growth for new energy vehicles is slowing, with exports taking over growth and still providing double-digit growth in the future. Energy storage batteries are in the early stage of an industry explosion, and as their share of total consumption rises, their weight in overall consumption will increase. It is expected that from 2026 to 2028, lithium will shift from a shortage of 71,000 tonnes to surpluses of 66,000 tonnes and 148,000 tonnes. Nickel: Indonesian policy constraints reshape supply elasticity, supply-demand shift to tight balance fortifies price floor Indonesia controls 66.7% of global mine output and contributed all of the net increment over the past fifteen years. The RKAB quota has become the core variable on the supply side: Indonesia's Ministry of Energy and Mineral Resources has stated that the 2027 quota will be below 290-300 million tonnes. Coupled with the accelerated clearing of high-cost non-Indonesian capacity, global primary nickel is expected to shift from a surplus of 283,000 tonnes last year to a slight shortage of 32,000 tonnes in 2026, ending four consecutive years of surplus. The industry's dual-track costs are evident, with marginal costs for externally sourced ore rising, supporting a medium-term center of US$17,000/tonne; a trend-based upward move still requires quota implementation, sustained inventory destocking, and improvement in stainless steel and battery demand. Rare earths: Strategic resource value reshaped, overseas shortage widens domestic-overseas price spread Rare earths combine supply rigidity with downstream irreplaceability, with prominent scarcity attributes, and China possesses whole-industry-chain advantages. After export controls took effect, overseas supply gaps emerged, and the domestic-overseas price spread has continued to widen, with spreads for some elements reaching 200 times. After overseas inventories bottom out, the scarcity pricing logic is expected to strengthen. On the demand side, rare earth elements benefit from rapid growth in new energy vehicles, energy-saving motors, wind power generation, and other fields. It is expected that by 2028, demand for high-performance neodymium-iron-boron magnetic materials will reach 194,000 tonnes, with a compound annual growth rate of 13.3% from 2025 to 2028. Risk analysis 1. A severe global economic recession and cliff-like contraction in consumption. 2. US inflation spirals out of control, the Federal Reserve tightens monetary policy more than expected, and a strong dollar suppresses equity asset prices. The US cannot effectively control inflation and continues raising rates. 3. Domestic new energy sector consumption growth falls short of expectations, and real estate sector consumption remains persistently sluggish.