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HONG KONG — China is set to tighten its hammerlock on the market for some of the world’s most obscure but valuable minerals.
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China is cutting exports of elements like terbium, pressuring manufacturers to open factories there.
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Yuriko Nakao/Reuters

Toyota’s Prius hybrids use several pounds of neodymium, a rare earth, in their electric motors.

China currently accounts for 93 percent of production of so-called rare earth elements — and more than 99 percent of the output for two of these elements, dysprosium and terbium, vital for a wide range of green energy technologies and military applications like missiles.

Deng Xiaoping once observed that the Mideast had oil, but China had rare earth elements. As the Organization of the Petroleum Exporting Countries has done with oil, China is now starting to flex its muscle.

Even tighter limits on production and exports, part of a plan from the Ministry of Industry and Information Technology, would ensure China has the supply for its own technological and economic needs, and force more manufacturers to make their wares here in order to have access to the minerals.

In each of the last three years, China has reduced the amount of rare earths that can be exported. This year’s export quotas are on track to be the smallest yet. But what is really starting to alarm Western governments and multinationals alike is the possibility that exports will be further restricted.

Chinese officials will almost certainly be pressed to address the issue at a conference Thursday in Beijing. What they say could influence whether Australian regulators next week approve a deal by a Chinese company to acquire a majority stake in Australia’s main rare-earth mine.

The detention of executives from the British-Australian mining giant Rio Tinto has already increased tensions.

They sell for up to $300 a kilogram, or up to about $150 a pound for material like terbium, which is in particularly short supply. Dysprosium is $110 a kilo, or about $50 a pound. Less scare rare earth like neodymium sells for only a fraction of that.

(They are considerably less expensive than precious metals because despite the names, they are found in much higher quantities and much greater concentrations than precious metal.)

China’s Ministry of Industry and Information Technology has drafted a six-year plan for rare earth production and submitted it to the State Council, the equivalent of the cabinet, according to four mining industry officials who have discussed the plan with Chinese officials. A few, often contradictory, details of the plan have leaked out, but it appears to suggest tighter restrictions on exports, and strict curbs on environmentally damaging mines.

Beijing officials are forcing global manufacturers to move factories to China by limiting the availability of rare earths outside China. “Rare earth usage in China will be increasingly greater than exports,” said Zhang Peichen, the deputy director of the government-linked Baotou Rare Earth Research Institute.

Some of the minerals crucial to green technologies are extracted in China using methods that inflict serious damage on the local environment. China dominates global rare earth production partly because of its willingness until now to tolerate highly polluting, low-cost mining.

The ministry did not respond to repeated requests for comment in the last eight days. Jia Yinsong, a director general at the ministry, is to speak about China’s intentions Thursday at the Minor Metals and Rare Earths 2009 conference in Beijing.

Until spring, it seemed that China’s stranglehold on production of rare earths might weaken in the next three years — two Australian mines are opening with combined production equal to a quarter of global output.

But both companies developing mines — Lynas Corporation and smaller rival, Arafura Resources — lost their financing last winter because of the global financial crisis. Buyers deserted Lynas’s planned bond issue and Arafura’s initial public offering.

Mining companies wholly owned by the Chinese government swooped in last spring with the cash needed to finish the construction of both companies’ mines and ore processing factories. The Chinese companies reached agreements to buy 51.7 percent of Lynas and 25 percent of Arafura.