On Monday (October 13), the Non-ferrous Metals Leading ETF (159876) pulled up from underwater levels in the afternoon and staged a major comeback in the final trading session! This represents the prevailing trend with advantages on our side - rare earths and non-ferrous metals deserve dedicated coverage!

This China-US confrontation was both spectacular and brief. China likely didn't anticipate how effectively the rare earth card would work, with Trump unable to withstand the pressure for even 48 hours.

What makes China's rare earth industry so exceptional? What investment insights can we draw from this?

Let's examine the fundamentals first. China accounts for approximately 70% of global rare earth mining output and 90% of processing capacity. Most crucially, China supplies 99% of the world's heavy rare earths (holding over 80% of global reserves).

Light rare earths serve as "widespread industrial foundations" used across many basic industrial sectors, while heavy rare earths function more like "high-tech essentials that make the finishing touch" - though used in smaller quantities, they often play decisive roles in critical performance applications, making their strategic position even more prominent.

In practical applications, heavy rare earths are used in phosphors, lasers, high-performance permanent magnets (especially neodymium-iron-boron with dysprosium and terbium additions for high-temperature resistance), nuclear reactor control materials, and advanced military equipment (such as missile guidance systems and stealth aircraft). Without heavy rare earths, global high-end manufacturing would essentially cease operations.

China not only possesses the mineral resources but also the technology, mastering advanced rare earth separation and purification techniques (such as cascade extraction methods) capable of efficiently producing high-purity products achieving rare earth element purities above 99.99% - a technological capability unique to China globally.

We also have a mature industrial chain, possessing a complete technical system and patent cluster covering everything from mining, mineral processing, smelting and separation to material processing (such as grain boundary diffusion technology for rare earth permanent magnet materials), spanning upstream, midstream, and downstream segments of the rare earth industrial chain. This industrial chain provides China's rare earth industry with enormous cost advantages.

Having the minerals + technology + industrial chain ecosystem, combined with rare earths being extremely important for modern industrial manufacturing, using this to pressure the United States hits exactly where it hurts most.

However, this very industry has long faced low profitability and even losses - can you believe that?

For example, major rare earth companies generally experienced pressure on their 2024 performance, with China Rare Earth Resources And Technology Co.,Ltd. reporting an annual net loss of 287 million yuan, while Northern Rare Earth saw net profit decline by 57.64% year-over-year.

Comparing resource sales, let's look at Australia's iron ore: In 2024, Australia sold nearly 1 billion tons of iron ore for $20 billion in profit. Meanwhile, China produced about 1 billion tons of steel in 2024, consuming approximately 1.6 billion tons of iron ore, for profits of only about $3 billion.

Iron ore, as you know, doesn't have absolute resource monopolization, lacks technological moats, and Australia has no cost advantages - so why can it harvest profits from China?

We recently had a confrontation with Australia's BHP over this issue and won. But Australia still earns substantial profits annually from iron ore exports.

Between Australian iron ore workers and Chinese steel mill workers, who bears the burden and who enjoys the peaceful times? It comes down to who holds the discourse power.

China's rare earth industry has long suffered from fragmentation - numerous, small, scattered, and chaotic operations, with illegal mining and irregular production disrupting market order and pricing, leaving everyone unable to profit despite sitting on a goldmine.

The establishment of China Rare Earth Group in 2021 integrated multiple southern rare earth enterprises, forming a "southern heavy, northern light" structure with Northern Rare Earth (dominating light rare earths) and China Rare Earth Group (dominating medium and heavy rare earths). This greatly reduced internal vicious competition and illegal mining, strengthened corporate pricing power and coordination capabilities, laying the market structure foundation for profit recovery.

The "Rare Earth Management Regulations" implemented on October 1, 2024, established fundamental systems including total volume control, full industrial chain supervision, and reserve systems. On April 4, 2025, export controls were implemented on seven categories of key medium and heavy rare earth items including samarium, gadolinium, and terbium, encouraging international demanders to shift production capacity or cooperation to within China's borders, benefiting the domestic high-end industrial chain. Meanwhile, years of continuous promotion of full-process traceability and environmental protection have eliminated backward capacity in the long term, promoting efficient resource utilization and sustainable development.

By restricting exports of primary raw materials and encouraging development of high-performance rare earth permanent magnet materials and other high-end functional materials, the goal is to maximize resource value domestically. This shifts corporate competition focus from "who mines more" to "who has better technology," creating healthier and more sustainable profit models, transforming business models from "selling dirt by the pound" to "selling materials by the gram."

Over the past five years, China's rare earth industry has undergone phoenix-like transformation, with fundamental changes to industry basics. It's no longer a cyclical industry but has become a monopolistic industry with international discourse power.

How much can it earn? It depends on how much it wants to earn.

On October 9, the Ministry of Commerce issued Announcements No. 61 and 62, while the Ministry of Commerce and General Administration of Customs issued Announcements No. 56 and 57, implementing export controls on foreign-related rare earth items, rare earth-related technologies, certain rare earth equipment and raw auxiliary materials, and certain medium and heavy rare earth items. Once the new policies take effect, all rare earth elements except lanthanum, cerium, praseodymium, neodymium, and promethium will be controlled, rare earth products including downstream components will be included in control scope, and rare earth production-related technologies and equipment will be comprehensively controlled. Control intensity reaches new heights.

On October 10, Baogang Co., Ltd. and Northern Rare Earth announced increases in rare earth concentrate related-party transaction prices for Q4 2025. After market close on October 10, Northern Rare Earth released a performance pre-increase announcement for the first three quarters of 2025, expecting to achieve net profit attributable to shareholders of 1.5-1.57 billion yuan, up 272.54% to 287.34% year-over-year; and non-recurring net profit of 1.33-1.39 billion yuan, up 399.90% to 422.46% year-over-year.

Following this price increase, Northern Rare Earth's net profit for 2026 is also expected to surge!

From an investment perspective, there are two approaches:

First, buy major rare earth leading stocks. The advantage is strongest offensive capability, while the disadvantage is relatively high current valuations and significant volatility.

Second, choose index funds. Rare earths are essentially part of the non-ferrous metals sector, so consider the Non-ferrous Metals Leading ETF (159876), with off-exchange connection code 017141.

This fund tracks the CSI Non-ferrous Metals Index, which besides major rare earths, includes tungsten, antimony, and other resources involving strategic security. In the context of global competition, their strategic attributes are enhanced and may likely replicate rare earths' trajectory.

Additionally, Federal Reserve rate cuts bringing monetary easing, geopolitical disturbances triggering hedge demand, and global central bank accumulation have made gold's trend very firm. Lithium, cobalt, nickel and other sectors are experiencing valuation repair due to "anti-involution" policy benefits.

From capital flow perspective, the Non-ferrous Metals Leading ETF (159876) also shows strength, with 257 million yuan inflows over the recent 3 days.

Overall, rare earths are just the beginning. Each non-ferrous metals sub-sector has its own strong logic. The price trend of the Non-ferrous Metals Leading ETF (159876) is far from over, and with relatively dispersed holdings and stronger stability, it's suitable as an entry point for investing in resource stocks.

Risk Warning: Markets involve risks, investment requires caution!

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