MELBOURNE (Reuters) -First-quarter revenue at Australia's Lynas Rare Earths ( LYSCF ) rose by 66% from a year earlier, the company said on Thursday, but missed market expectations, though it flagged strong demand from existing and emerging customers for strategic metals.

Governments outside dominant rare earths producer China have been scrambling to develop an alternative supply pipeline for industries including automotive and defence as China has stepped up export restrictions linked to the sector. 

Lynas, the world's largest producer of rare earths outside China, is leaning into the push by expanding its customer base, and negotiating for higher prices, as it ramps up production including that of the most valuable heavy rare earths.

Lynas posted sales revenue of A$200.2 million ($130.09 million) for the quarter ended September 30, up from A$120.5 million a year earlier but missing the Visible Alpha consensus estimate of A$230 million. Shares traded little changed at A$15.27 by midday.

"Market demand is strong, and we have a great deal of flexibility in choosing to whom we sell and at what price," CEO Amanda Lacaze said on a results call.

Lacaze said Lynas forecasts rare earths demand growth in the high-single to low-double digits per year.

Australian brokerage Barrenjoey said Lynas missed its revenue expectations because supply anxiety did not appear to have boosted customer demand as much as it had anticipated.

"It would appear downstream demand was not as strong as we had thought it would be and the ramp in Dy (dysprosium) and Tb (terbium) being available for sale is a taking a tad longer," Barrenjoey analyst Daniel Morgan said in a note.

Dysprosium and terbium, which Lynas began producing earlier this year, are among the most valuable of the rare earths. Lynas said it has brought forward plans to start producing samarium in the first half of next calendar year due to demand, from 2027.

Lynas' rare earth oxide output for the first quarter was 3,993 metric tons, compared to 2,722 tons reported last year. It produced 9 tons of dysprosium and terbium.

"In terms of testing the market we have identified extremely strong demand ... And we have identified a preparedness to pay because of the scarcity of the material from outside China sources," Lacaze said.

IMPROVING PRICES

The results came as Washington and Beijing this week reached a framework for a trade deal that could pause planned U.S. tariffs and delay Chinese export controls on critical minerals, including rare earths, for a year, easing fears of supply disruptions that had boosted the sector this year.

China processes more than 90% of the world's rare earths and magnets and recently expanded export curbs including adding rare earths processing equipment to its export control list.

Lynas said those restrictions would impact its business; however, it has identified alternative supply sources for key inputs should export restrictions go ahead.

Governments are still expected to help underpin development of an alternative supply chain, via supporting deals containing price floors. Australia has said it is considering price floors but agreements have yet to materialise beyond a U.S. deal with its largest rare earths producer MP Materials.

"MP was facing an existential crisis as a result of the tariff and trade restrictions between China and the U.S., ...the timely implementation of that deal was important," Lacaze said, adding she was looking forward to hearing about outcomes on policy settings from the recent G7 meetings in Canada.

In the meantime, the company is carefully managing production rates and sales until "various governmental agreements have been finalised," Lynas said in its earnings statement.

The firm also continues to see "significant uncertainty" over the future of its heavy rare-earths processing plant at Seadrift, Texas. It is focusing on a build-out of a processing plant in Malaysia, to satisfy East Asian demand, Lacaze said.

($1 = 1.5389 Australian dollars)