China Northern Rare Earth Group: Earnings Decline, Positive Long-Term Outlook

Highlights

• China Northern Rare Earth Group experienced a significant 60% profit drop in 2023 due to market oversupply and weak demand.
• Production quotas increased by 21%, and rare earth mineral imports surged by 60%, causing prices to fall by 36%.
• The company maintains a strategic market positioning with the potential for long-term growth despite current market challenges.

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China Northern Rare Earth Group High-Tech (opens in a new tab) (600111), a major state-backed rare earth company, has reported a projected net income decline of 54.4% to 59.9% for the fiscal year, estimating earnings between 950 million yuan and 1.08 billion yuan. Despite this sharp drop, analyst sentiment remains overwhelmingly positive, with eight buy recommendations and no holds or sells.

A significant drop, Rare Earth Exchanges

The company has experienced a significant decline in sales and profits recently, primarily due to a combination of market dynamics affecting the rare earth industry. The company reported a net profit decrease of approximately 60% in 2023, attributing this downturn to several key factors.  These factors include:

Factors	Summary
Oversupply in the Market	China increased its rare earth production quotas by 21% in 2023, leading to an oversupply in the market. Additionally, imports of rare earth minerals surged by about 60%, further saturating the market.
Declining Prices	The oversupply, coupled with weaker-than-expected demand, caused prices of major rare earth products, such as praseodymium-neodymium oxides, to fall by 36% from the previous year.
Weak Demand	Despite the increased supply, downstream demand growth was relatively feeble, influenced by factors such as a slower-than-expected macroeconomic recovery and geopolitical tensions.

These combined factors have led to a challenging environment for China Northern Rare Earth Group, resulting in decreased sales and profitability.

The company’s Smartkarma Smart Scores (opens in a new tab) reflect a mixed but promising outlook. A strong Momentum score of 4 highlights positive performance trends, while Growth and Resilience scores of 3 indicate solid potential for expansion and stability. However, moderate Value and Dividend scores of 2 temper the overall score to 2.8, reports SmartKarma (opens in a new tab).

As Rare Earth Exchanges chronicles, China Northern Rare Earth Group, headquartered in Inner Mongolia, operates across the rare earth value chain, including mining, smelting, separation, and utilization. This integrated structure positions it as a dominant player in the sector. While near-term earnings are under pressure, the company’s strategic market positioning and strong operational resilience suggest robust long-term potential.

However, the earnings drop raises questions about market dynamics and the broader implications for China’s rare earth industry amidst global competition and evolving demand.