Chen Zhanheng, deputy secretary-general of the Association of China Rare Earth Industry, told China Daily that around 90% of rare earth companies have been losing money consistently, and that many may have to close units this year.
Many companies moved into rare earth mining and production when the market was strong,, leading to an excess supply of products on the market, Chen said. Along with illegal mining, this has driven prices down, he told China Daily.
Rare earths are a set of 17 metal elements which have magnetic and optical properties. They are essential for the manufacture of a range of high tech products including mobile phones, wind power turbines, disk drives and defence technology.
"Rare earths are not as difficult to mine and process as many seem to think, so many illegal miners are bypassing the regulations to dig and smelt the metals. This, in turn, led to a glut in the market," Chen said.
From September to May, about 12,400 tons of rare earth was explored illegally, according to Xin Guobin, vice-minister of the Ministry of Industry and Information Technology speaking at the 7th China Baotou Rare Earth Industry Forum, China Daily said.
The ministry shut down 55 illegal rare earth producers and 22 illegal mines in the past four years, Xin said, China Daily reported.
The government will continue to restructure the rare earth industry and give more support to high-tech companies in the downstream business, Xin said.
China removed tariffs on rare earth exports earlier this year. Tariffs to be removed include those related to shipments of tungsten, molybdenum, ferroalloys, indium and aluminium rods and bars.
In 2014, the World Trade Organisation (WTO) ruled that export restrictions by China violated its WTO obligations.
At the time, a Chinese official warned that the country may impose new taxes on producers, if forced to drop the export tariffs.