Business conditions have deteriorated at China’s rare earth companies since Beijing banned exports of the metals to Japan during a snit over the Senkaku Islands two years ago.

Demand for rare earth elements, which are used in high-tech products, has declined with the global economic slump. In addition, Japanese manufacturers have developed substitute materials and sought new suppliers outside China after the export ban, depriving the Chinese companies of key customers.

Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co., China's leading supplier of rare earths, suspended operations for one month at some production plants starting on Oct. 23.

The move is designed to stabilize prices, Baotou Steel Rare-Earth said in a document submitted to the Shanghai Stock Exchange. The company also said transaction volume and rare earth prices have both declined in the second half of this year.

Baotou Steel Rare-Earth’s net profits plunged 90 percent year on year for the July-September quarter. Another major rare earth producer, Xiamen Tungsten Co., reported a nearly 50-percent drop in profits over the same period.

Many small and midsized rare earth companies in China have also been forced to suspend their mining development and production operations.

China accounts for more than 90 percent of the world’s production of rare earth metals. But Chinese media reports said rare earth production in the country for 2012 is expected to total 60,000 to 70,000 tons, or around half of peak levels. The Time Weekly, a Chinese newspaper, described the situation as “rare earth hibernation.”

Japanese companies have procured most of their dysprosium--a heavy rare earth used to produce electric motors and batteries--from China. However, the situation is changing.

“Demand for the material has been sagging due to the global economic slowdown, and Japanese companies have also stocked up,” said Kunihiko Shinoda, head of the Beijing office of Japan Oil, Gas and Metals National Corp.

Since the late 2000s, China has consolidated a number of rare earth companies and limited production and exports, citing the need to preserve resources and protect the environment.

In autumn 2010, the country suspended rare earth exports to Japan as a retaliatory measure against the arrest of the captain of a Chinese fishing vessel that rammed Japan Coast Guard patrol ships off the Senkaku Islands in the East China Sea.

The following summer, the prices of many rare earths shot up more than tenfold.