China to remain top rare earth metals producer: Silmet

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.