Author: David, Chaoxiang Research

On June 22, the Ministry of Commerce issued Announcement No. 23 of 2026, naming 10 American entities including Aiveox, Red Cat Holdings, and MP Materials in the export control list, prohibiting the export of dual-use items to them; on the same day, an additional 46 American companies were also placed on the government procurement restriction list.

(The author’s note: Dual-use items refer to goods, technologies, and services that have both civilian and military applications, or that may enhance military potential.)

This marks yet another round of normalized countermeasures from China against rare earths since October 2025, with the 10 American companies specifically mentioned focusing on the military, drones, and rare earth sectors.

The most eye-catching names on the list are MP Materials and USA Rare Earth, both of which are symbols of American rare earths. The market's first reaction to China taking action against them is positive for the A-share rare earth sector: with competitors choked, domestic players become more scarce and valuable.

The problem is that the upstream leaders of rare earths have already reached their annual highs in this wave that started rising from October last year; by realizing this now, is it too late?

If it is too late, where should the money go?

This control list from the Ministry of Commerce involves more than just the rare earth line. The seemingly saturated rare earth sector may still have catalysts for the next phase, and the lesser-known lines that haven't followed suit may not yet be on anyone's radar.

We attempt to outline the possible influencing clues and present them on price coordinates for everyone’s reference.

Key Conclusions

① The upstream of A-share rare earths has already risen to saturation, and this control is not a new catalyst.

As of now, Northern Rare Earths are priced at 52.9 yuan, with only about a 20% space from the year-high of 63.6 yuan; Guangsheng Nonferrous at 115 yuan and Shenghe Resources at 33.6 yuan are close to their yearly highs as well. These upstream resource stocks have been rising since October last year, and the rationale of "benefiting from rare earth countermeasures" has been mostly priced in. This control serves more as a reaffirmation of trends rather than a new starting point for an increase in the rare earth industry’s upstream.

② The relatively underpriced sectors are the downstream of rare earth magnetic materials and the drone industry chain.

Within the rare earth chain, the valuation of the downstream is significantly lower than that of the upstream:

The magnetic material sector’s Dadi Bear at 30.7 yuan and Zhenghai Magnetic Materials at 13.7 yuan are still at the lower edge of their yearly range, significantly lagging behind the rise of upstream resource stocks. The drone sector corresponding to the companies on the control list, Red Cat and Teal Drones, is even more subdued, with drones nearing their yearly lows and limited market attention. Pricing progress among various segments has not been consistent under the same event.

③ The American stocks named may not constitute a unilateral bearish situation and need to be validated upon opening.

MP Materials and USA Rare Earth are core targets in the American domestic rare earth supply chain, with MP having the backing of the Department of Defense.

For these types of companies, China's export controls and American policy support coexist as two forces, and their effects may not align. All three stocks were not at low points before the announcement, but since the announcement was made on a Monday before the US market opened, the true pricing reaction awaits the market’s response.

Investors holding relevant positions should focus on the trends after the market opens.

Why restrict exports and favor domestic rare earths?

Many people might find it counterintuitive at first glance: banning exports is not reducing the business of Chinese companies, so how can it be a good thing?

The key lies in the direction of the control. This time, the ban is on China selling rare earth-related items to those 10 American companies, cutting off the supply source for these US companies, rather than affecting the raw material procurement of Chinese manufacturers.

China's rare earth supply chain, from mining, smelting separation to magnetic material manufacturing, is the most complete globally, self-sufficient, and does not rely on imports from the US. In other words, this announcement does not impact Chinese suppliers upstream; they will continue to produce and export as usual.

The real squeeze is on the American side.

Companies like MP Materials and USA Rare Earth wish to bypass China and build their own supply chains, yet they still rely on Chinese separation technology, equipment, and certain intermediate materials. If competitors are choked, it effectively increases the scarcity and bargaining power of Chinese manufacturers in the global rare earth landscape, which is the real reason the market interprets it as positive for A-share rare earths.

The upstream of rare earths has already risen to saturation, but money has yet to flow to the downstream.

First, let’s clarify the chain. Rare earths are mined from the earth and then processed into raw materials like praseodymium and neodymium oxide, which is the upstream; the companies involved in this phase include Northern Rare Earths, Guangsheng Nonferrous, and Shenghe Resources;

These raw materials are then processed into neodymium-iron-boron permanent magnetic materials and incorporated into various motors, forming the mid and downstream. Jilin Permanent Magnetic, Zhenghai Magnetic Materials, and Dadi Bear are active in this layer.

The upstream sells raw materials, while the downstream sells magnetic materials.

In this round of market activity, most of the money has flowed into the upstream. Northern Rare Earths are priced at 52.9 yuan, Guangsheng Nonferrous at 115 yuan, and Shenghe Resources at 33.6 yuan, all at or near their highest points in a year. The logic is straightforward: every time the strategic position of rare earths is emphasized, the first beneficiaries are those with mines and production capacity in smelting, whose scarcity is tangible.

This control event may be a directional benefit for the upstream, but prices have largely digested this expectation, making it feel more like catching a high position now, which isn’t a good bet.

Moving down to magnetic materials, the pricing progress has clearly lagged behind.

Among the three leading magnetic material companies, Jilin Permanent Magnetic boasts a revenue of 7.7 billion and doubled its net profit, with its stock price rising over 90% in 2025, placing it at a high position; however, Zhenghai Magnetic Materials and Dadi Bear are still positioned at the lower end of this year's price range and have not kept up with the increase of the upstream.

Here’s a background that might be easily overlooked:

Since the second half of 2025, China has actually relaxed restrictions on the export of magnetic materials to the US. For instance, Jilin Permanent Magnetic has achieved sales of 500 million to the US, a 40% annual increase; Zhenghai and Dadi Bear have also received export licenses to the US. This latest addition of 10 companies to the control list is part of a precise action within the framework of “granting licenses to ordinary commercial clients while cutting off supply to specific military entities,” rather than a comprehensive embargo.

Thus, the impact of this reasoning on the financial reports of magnetic material companies is actually limited.

The 10 American companies named were not primary clients for them, as Jilin Permanent Magnetic and Zhenghai Magnetic Materials derive their true revenue from new energy vehicles and robotic motors, which are not closely related to military exports to the US.

This control, is more of an emotional uplift for the magnetic material stocks, and it may not translate into substantial orders. However, the truly noteworthy aspect for the downstream rare earths lies in which businesses align closely with the military themes listed this time.

In this regard, Dadi Bear aligns more closely than the other two companies.

Dadi Bear is smaller in scale, with a 2025 revenue of 1.6 billion and a net profit of 57.4 million, but it is a major supplier of military magnetic materials in China, with public data showing a market share exceeding 40% in this area, with products used in equipment like aircraft engines and missiles, which directly correspond to the listed military and drone companies on the control list, making it the most direct narrative connection to this event.

However, a good narrative does not equate to stability: financially, it has only an 18% gross margin, and a debt ratio approaching 60%, indicating that its profitability and financial security are weaker compared to its peers. Additionally, due to its smaller scale, while the stock price may bounce rapidly upwards, it can also drop sharply.

This is suitable for those who can withstand volatility and prioritize "pure themes," but not for acting as a ballast.

Zhenghai Magnetic Materials represents a different type. Its net profit doubled in 2025, with a stronger reversal than Dadi Bear; however, its driving force comes from humanoid robots and new energy vehicle motors, which are not related to the current military list. Its low price is more about the robotics story not being fully priced in by the market.

Therefore, when reading through this rare earth line, the upstream and downstream face different situations.

The upstream holds resources, has the most tangible scarcity, but prices have already summarized the positives, making it feel like a high entry point now; the downstream magnetic materials are still at low points, with Dadi Bear closely linked to the military list, but at the cost of being smaller and financially weaker; Zhenghai Magnetic Materials is cheaper but does not have strong relevance.

Drones: The list has touched on this line, but there’s no direct positive impact.

Red Cat Holdings and its subsidiary Teal Drones on the control list supply military reconnaissance and strike drones in the US, precisely the type of military drone suppliers that the US wants to support to replace Chinese products.

Consequently, the market may associate this with the A-share military drone sector, but the logic of benefit here is likely not the same as that of rare earths. This will not bring orders to any specific Chinese drone company; instead, it puts “the US-China confrontation in military drones” in the spotlight, prompting the market to refocus on the strategic value and military trade competitiveness of domestic military drones.

In terms of finding corresponding targets in A-shares, the business that aligns most closely is China Drone.

China Drone is a leader in domestic large military drones, with its core product being the Wing Loong series of reconnaissance-strike drones. Drone systems account for over 90% of its main revenue, primarily exported through military trade, making it a key model for China’s military trade drones.

In terms of business alignment, it indeed operates in the same arena as the American drone companies mentioned in the list, presenting the highest relevance in this regard.

Currently priced at 44 yuan, it is at a low point in its yearly range, but this position is formed by a return from a high point, not that it hasn’t yet started.

The 2025 financial report indicates that the company’s performance is significantly boosted by military trade orders, with revenue in the first three quarters growing over threefold year-on-year, and the stock price once climbing above 48 yuan; the current drop is closer to a cooling off after the realization of profits.

It should be noted that military trade revenue is highly dependent on a few large orders; a 70% year-on-year decline in 2024 has resulted in losses, followed by a strong rebound in 2025. This characteristic of larger and smaller years means that judging its cheapness based on price position is unreliable; the real variables are the signing and delivery timelines of subsequent military trade orders. In terms of valuation, the company’s price-to-earnings ratio has long remained in the dozens, which does not constitute low valuation.

Export restrictions do not completely spell doom for related US stocks.

This is the most concerning issue for those holding relevant US stocks, and the answer may differ from intuition: not necessarily.

The most significant entities in the export control list, MP Materials and USA Rare Earth, are core vehicles for the US to reduce its reliance on Chinese rare earths. MP is the only vertically integrated rare earth company in the US with scale, having obtained investment from the US Department of Defense in 2025, and is a beneficiary of national strategic support. This identity determines that its situation is bidirectional:

China cutting off its access to dual-use items from China will also concurrently prompt the US government to provide more orders and subsidies due to supply chain security considerations.

Prices prior to the announcement support this judgment. MP, USA Rare Earth, and Red Cat Holdings were all not at low points before the control news broke; the market did not sell them off anticipating "possible sanctions" beforehand, indicating that investors did not simply price them as victims.

Of course, the ultimate direction will have to wait for the market to open. The announcement was released on a Monday before US markets opened; whether the sanctions are read as substantial bearish news or whether supportive expectations are offset can only be determined by trading after the market opens.

Note: This article is a compilation of information and analysis of viewpoints; the stocks, ratings, and target prices mentioned come from publicly available sources and are timely, not constituting any investment advice. The market carries risks; decisions should be made with careful judgment.