China's largest metals trader has called for government to consolidate the rare earth industry and nurture competitive domestic firms in the sector, the Xinhua reported on Monday.

The difficulties facing China's rare earth industry mainly come from the fact that local authorities, owners of rare earth mines, tend to issue mining licenses to local firms. Often small companies churn out low value-added products, Zhou Zhongshu, president of China Minmetals told Xinhua.

As most mining licenses go to local firms, all sorts of enterprises, such as centrally administered state-owned enterprises (SOEs), local SOEs, private firms and foreign enterprises have equal chances of smelting the rare resources, the Xinhua reported. The REEs are the lanthanide elements, scandium, and yttrium. Although industrial demand for these elements is relatively small in tonnage terms, they are essential for a diverse and expanding array of high-technology applications, including the magnets, metal alloys, and batteries for key defense systems, as well as many current and emerging alternative energy technologies.

While the miners reap handsome profits amid rampant illegal mining activities, the smelters have only razor-thin profits as a result of the soaring cost of processing and fierce competition, and are left with no funds to conduct technological innovations, Zhou told Xinhua.

This would help streamline and promote the development of the rare earth industry since competitive and responsible enterprises would be engaged in mining and processing. Such businesses are expected to take environmental protection into consideration, he further added.

According to the US Geological Survey's Mineral Commodities Summary, China produces approximately 97 per cent of the world's rare earth. Of the 124,000 tonnes of ore mined in the year 2009, China produced 120,000 tonnes.

China mines about 90 percent of the world's rare earth minerals - which is a collection of seventeen chemical elements and is used to various technological devices, cellular phones, high performance batteries, flat screen televisions, green energy technology, and are critical to the future of hybrid and electric cars, high-tech military applications and superconductors and fiber-optic communication systems.

China has been reducing export quotas of rare earth minerals for the past few years, citing environmental concerns. China's monopoly of the rare earths market has allowed it to manipulate the market by restricting production, using export quotas to limit global supply, and increasing taxes on rare earth metals.