November 3 -- The rare earth sector in China, which had seen the two biggest domestic rare earth producers, including Inner Mongolia Baotou Steel Rare Earth Hi-Tech (600111), halting production recently in a failed bid to fight falling prices, is now facing a huge selloff, reports Economic Information.

With recent media reports that the government is planning to introduce specialized invoices for the rare earth sector in order to better control industry output, curb illegal sales and smuggling activities, small companies which possess rare earths from unidentified sources had begun to dump their inventory of rare earth minerals on the market.

This led to the price of such rare earth minerals plunging to 100,000 yuan per ton, compared with the price of more than 300,000 yuan per ton for rare earth minerals from official sources.

Market insiders said there were many companies and individuals conducting private mining and extraction of rare earth minerals in order to take advantage of the surge in prices earlier in the year.

Due to the lack of proper surveillance and control measures, the rare earth minerals produced by these companies and individuals flooded the market, accelerating the formation of a bubble.

The trend of rising rare earth prices began to reverse in July when orders from downstream customers shrunk by half from the second quarter, while two-thirds of the downstream companies either halted production, or were operating at reduced capacity.

According to information provider Shanghai Metals Market, the price of lanthanum oxide had fallen to 120,000 -125,000 yuan per ton as of October 24, while the prices of cerium oxide, praseodymium, and neodymium had dropped to 130,000-145,000 yuan per ton, 1.3 million-1.35 million yuan per ton and 20 million-22 million yuan per ton, respectively.

Lin Dongru, secretary general of the Chinese Rare Earth Society, said the introduction of the specialized invoices means that the government will be better able to manage the production and sale of rare earth minerals, and sales of rare earth mined from authorized sources will be banned.

According to Heng Kun, chief analyst at Essence Securities, measures by major producers, such as a production halt or adding to reserves, are not effective in the face of market turmoil.

Shares of Inner Mongolia Baotou Steel Rare Earth Hi-Tech rose 3.43 percent to close at 47.95 yuan today.