LONDON China looks set to remain the leading producer of rare earth metals for years to come, with prices to double next year, top European producer AS Silmet of Estonia said on Monday.
China is the world's biggest producer of rare earth metals, vital for the auto and electronics industries.
But concerns over global supplies have increased in recent months, after tensions rose between China and top consumer Japan, over imports.
"There are more than 200 rare earth projects outside of China," David O'Brock, chief executive at the privately-owned AS Silmet told Reuters. "There are a lot of very optimistic projects out there -- which may never be realized.
"If the Chinese leave the quotas at what they are today, I would guarantee that prices will at least double for next year."
China accounts for more than 90 percent of the world's total production of rare earth, mining around 120,000 tonnes in 2008.
Investors have watched for sometime rising global demand coupled with limited supplies of rare earth metals.
On Monday, trading and mining giant Glencore International GLEN.UL said it had entered into an agreement for the joint development of a rare earth mine.
"The way things are today, it's quite bad for a lot of our customers," said O'Brock, whose firm is one of the biggest rare earth metal producers in Europe. "Last year they ran all their stocks down ... this happened in a lot of Japanese companies.
"They ended up with very little in stock, and the Chinese come out and say 'next year we're not giving any quotas.' Of course it starts a panic."
Cheap labor and lax environmental policies allowed China to undercut other global producers in the 1990s, leading to rare earth mine shutdowns around the world.
Then, China reduced export quotas to build up its refining, processing and alloy production industry.
"In 1999 our customers were paying 85 cents a kg for lanthanum," O'Brock said about a metal used to make rechargeable batteries for hybrid cars. "Today, I'm assuming lanthanum can be sold for about $35 a kg in the European Union.
"2008 was quite strong for us. 2009 I couldn't give the stuff away and now in 2010 everybody is screaming for material."
Rare earth metals produced by AS Silmet include steel ingredient niobium and tantalum, which is used in aerospace and computer manufacturing.
DEMAND TO RISE
Analysts say demand for rare earth metals is likely to increase by between 10 percent and 20 percent each year.
"Will (demand) stay the same? Absolutely not," O'Brock said. "Which way is it going to go? I don't know."
The AS Silmet factory began processing rare earth metals in the early 1970s, and processed and enriched uranium before that.
The factory in Estonia gets untreated raw earth metals from a mine near the Kola Peninsula close to Murmansk.
"Our customers get the majority of materials from China ... we've been able to be so flexible that maybe a shipment didn't come in from China, we can fill the hole," he said.
Silmet's annual production ranges up to 3,000 tonnes for rare earth products, according to its website.
"In relation to the Chinese, we produce just a couple of drops," O'Brock said. "In order for us to increase our capacity, we would have to do some major investment," he said.
Earlier this month, U.S. business groups urged the Obama administration to press China to ease export restrictions on rare earth metals, while Japan is considering starting a stockpile.
"I don't believe there is enough materials for the industry today, let alone stockpiling," said O'Brock.
(Editing by James Jukwey)