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Rises in Chinese rare earths prices are expected to continue in the third quarter on the back of the continuing government-led regulations and growing physical demand from the magnetic material sector.

Prices of many rare earth elements rose sharply in the first half of this year as a result of tighter spot availability caused by anti-pollution checks as well as the government's tighter regulations on illegal production.

Meanwhile, the government has started to monitor producers' sales data instead of production data, which indicated that stocks sold by producers would be calculated in production quotas. Enforcement of these polices is expected to remain rigorous in the longer term. 

According to Argus price assessments, average spot prices for core light rare earth oxides and metals including praseodymium, neodymium, lanthanum and cerium rose across the board over the period, with the highest gains among praseodymium and neodymium.

Prices for 99pc praseodymium-neodymium oxide were assessed on average at 358,000 yuan/t ($52,733/t) ex-works on 11 June, up from Yn260,500/t on 3 January. This represents a 37pc price increase since the beginning of the year, and there were similar gains on the 99pc praseodymium-neodymium metal market.

Demand has also moved prices, but to a lesser extent than government actions. Production of magnetic materials, the key consuming sector of magnetic rare earths such as neodymium and praseodymium, has risen this year on the back of developments in industrial intelligence and automobile electronics, downstream sectors that require permanent magnets.

China's automobile production rose by 4.64pc year on year to 13.52mn units in the first half of this year. Capacity utilisation rates at large Chinese magnetic material manufacturers were as high as 75-80pc in the same period.

Rare earths prices could receive a boost from possible government-led stockpiles for 9,000t of material in the second half of this year and a public bidding conference is due in July, according to market participants.

China has built up a regular system to stockpile rare earths as part of continuing efforts to tackle oversupply, which has hampered price changes from 2012 to the beginning of this year. In March, the country's state reserve bureau (SRB) launched a national stockpile for 3,000t of rare earths, prompting prices to rise. Beijing also launched national stockpile buying for about 2,000t of material in January and 1,400t in December 2016.