A report from Industrial Securities suggests the combined effects of a new national standard and tighter tax compliance are steering the rare earth recycling sector from a fragmented, unregulated state towards standardized management.

In Q2 2026, the total output of praseodymium-neodymium oxide increased by 2.5% quarter-on-quarter, whereas the output of recycled praseodymium-neodymium oxide fell by 8%.

The future movement in the price spread between oxides and scrap will hinge on the relative shifts in oxide prices, the scarcity of compliant scrap, and the speed at which scrap prices catch up.

In the near term, the contraction in recycled supply provides support for the prices of praseodymium-neodymium oxide and medium-to-heavy rare earths; over the medium to long term, it is expected to channel scrap resources towards leading, compliant enterprises.

Key Drivers: Standardization and Tax Compliance

The implementation of the new national standard GB/T 46992-2025, effective July 1, 2026, along with a tightening of tax compliance, is jointly propelling the rare earth recycling industry towards a more regulated operational framework.

This new standard provides a systematic specification for the classification, coding, testing, packaging, transportation, storage, accompanying documentation, and comprehensive utilization requirements of secondary rare earth resources, covering nine major categories.

While it is a recommended, not mandatory, standard, it is anticipated to become a key reference for downstream procurement, factory acceptance, environmental record-keeping, tax compliance, and supply chain certification, gradually unifying the industry's transaction protocols.

Factors Behind the Q2 Decline in Recycled Share

The decrease in the proportion of recycled material in Q2 stemmed from a dual impact: the recovery in output from primary ore sources and disruptions caused by tax compliance enforcement.

As primary ore separation plants ramped up operations, the increased output of primary-sourced oxide diluted the share of recycled material in the total production.

Concurrently, intensified tax audits since May, deepening in June, left some recycling firms unable to source scrap with proper invoices, leading to a noticeable drop in recycled oxide output for the month.

Evolution of Scrap Pricing Mechanisms

The enforcement of compliance and the new standard are shifting the scrap pricing system from a model based purely on grade to a comprehensive model that factors in "grade + invoice + testing + liquidity."

Scrap that comes with proper invoices, clear classification, stable composition, is testable, and has accompanying documentation will command stronger liquidity and bargaining power.

Conversely, scrap lacking invoices, being mixed, of unclear origin, or difficult for factory acceptance may face deeper discounts or become illiquid.

Outlook for Recycled Supply and Industry Consolidation

Following the formal implementation of the new national standard, the rare earth recycling market is undergoing a period of adjustment concerning invoicing, classification, testing, delivery, logistics, and tax compliance rectification.

Short-term industry operating rates are expected to remain at relatively low levels.

Although the upcoming peak demand season may boost magnet manufacturers' operations and increase the output of tax-compliant scrap, restructuring supplier relationships, arranging invoice compliance, adjusting toll processing models, and establishing corporate records will take time.

Consequently, the output of recycled praseodymium-neodymium oxide in the second half of the year may not reach the levels seen in the first half.

This near-term supply contraction underpins oxide prices, while the medium-to-long-term trend points towards a concentration of scrap resources within leading, compliant companies that possess capabilities in compliant procurement, testing, environmental processing, hydrometallurgical separation, and customer certification.

Risk Factors

Potential risks include weaker-than-expected enforcement of the recommended standard, a rapid recovery in recycled supply following adjustments to tax and procurement models, inventory losses from high-priced stock if rare earth prices decline, weaker-than-anticipated demand from downstream magnet sectors, and temporary production halts due to environmental, safety, or tax inspections.