Japanese customers of rare earth metals are looking elsewhere for supplies after a de facto ban on shipments from China, imposed as tensions flared between Japan and the dominant world producer of the minerals, added to worries already heightened by a cut in this year’s export quotas.

Australian rare earths prospector Lynas Corp Ltd said on Wednesday it had signed a contract with a major Japanese consumer to supply rare earth minerals produced in Malaysia.

Lynas, owner of the world’s largest undeveloped deposit of rare earths, did not identify the customer.

Toyota Motor Corp said it had set up an internal task force to help diversify the sources of rare earth minerals its suppliers use to build parts for its hybrid vehicles, to reduce the risk of relying too heavily on China.

China has resumed export licences for rare earth minerals, vital for Japan’s key auto and electronics industries, ending the de facto ban, a trade house source told Reuters on Wednesday, although procedural delays continue to restrict shipments.

“There is a long line at the customs office,” the source told Reuters.

Smartphones to Electric Cars
The halt followed Japan’s detention of the captain of a Chinese fishing boat that collided with two Japan Coast Guard patrol ships near disputed East China Sea islets, called Diaoyu in China and Senkaku in Japan.

The skipper was released and went home last weekend.

China accounts for about 97 percent of the world’s total production of rare earth elements, about half of which are exported to Japan.

They are used in a wide array of products from smartphones to LCD screens to electric vehicles, and a ready supply is crucial to manufacturing industries that keep Japan and other developed economies ticking.

China had already cut its export quotas for rare earth minerals in 2010 by 40 percent from 2009, the China Chemical Industry News said in August, as it reins in exports to feed strong domestic demand.

Political tensions are also likely to persist with neither Japan nor China showing any signs of softening their stance in the dispute over the islets, which are near rich fishing grounds and potentially large oil and natural gas reserves.

Following the trawler captain’s release, Beijing demanded compensation and an apology, which Japan rejected, while four Japanese nationals have been held in China since last week on suspicion of violating a law protecting military facilities.

Japanese companies’ cooperative agreements with China in the minerals sector have also proven vulnerable.

China’s Yiyang Hongyuan Rare Earth has terminated a joint venture with two Japanese companies, Meiwa Corp and Daiichi Kigenso, to produce value-added rare earth products, a metals website said, stating that conditions were not ripe for cooperation. (Reuters)