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June 12 2013, 4:01PM

Lynas is worried that it is giving away its rare earths products and has decided to draw a line in the sand for its own prices.

Current spot prices of typical light rare earths are $US16-$US20 a kilogram, 25 per cent below the minimum sustainable level for producers, according to Lynas.

Major industry participants in China, which controls most of the world's supply, agreed the price falls were not sustainable, it says.

Less than three years ago prices hit $100.

Lynas has set a new "minimum price schedule", which will come in on July 1.

It will try to convince its mostly Chinese customers that they should pay higher than market prices, because the benefits of striking long-term contracts that guarantee supply are in their interests.

Unprofitably low prices are something Lynas cannot afford after only recently beginning production at its refinery in Malaysia, following a protracted legal battle involving local and foreign environmentalist opponents.

The company's shares slumped on the news, losing 1.75 cents, or 3.43 per cent, to 49.25 cents.

"Lynas believes that only prices which are sustainable for producers and for customers will allow the REO (rare earths) market to grow to its full potential over the long term," chief executive Eric Noyrez said in a statement.

Rare earths have a large range of hi-tech uses, with the demand growth expected to come in permanent magnets, devices used in cars called automotive catalytic converters and fluid cracking catalysts used in oil refineries.

Customers have recently been running down inventory and contributing to the price falls.

The weak demand prompted Lynas to announce last week that it was cutting costs and would wait for it to improve before increasing production from 11,000 tonnes a year to 22,000.

At full capacity, it will produce up to a fifth of global rare earths output.

Its Mt Weld mine in Western Australia is considered the world's richest deposit of rare earth minerals.

By Greg Roberts