Japan aims to cut rare earth consumption by a third within a few years and reduce its reliance on China, by providing subsidies for recycling and investing in new ways to limit their use.

Japanese firms consume about 30,000 tons a year of rare earth minerals to produce mobile phones, electric car motors, high-tech electronics parts and batteries.

A spat over disputed islands in the East China Sea led to a de-facto suspension by Beijing on exports of rare earths for part of last year, sending Japan scrambling to find alternatives.

Some 160 projects by companies such as Intermetallics Co, Hitachi Metals Ltd <5486.T>, Mitsui Mining and Smelting Co <5706.T> and Asahi Glass Co <5201.T> will invest a combined 110 billion yen ($1.34 billion) by March 2012, using government subsidies of 33.1 billion yen as seed money, Japan's trade ministry said on Friday.

That number is set to grow as the government solicits more applications with the offer of another 8.9 billion yen in subsidies.

We've been supporting research and development in areas like reducing the amount of rare earth in abrasives by allocating money from our annual budget as well, Tsutomu Morisaki, director at the ministry's nonferrous metals division, said at a news conference.

In addition to rare earths like cerium for abrasives and dysprosium for magnets, Japan is also looking to cut down on its use of cobalt and tungsten.

These subsidies come on top of another 58 billion yen of subsidies announced in October to develop mines abroad and to research alternative materials.

GARBAGE EXPORTS

Hikaru Hiranuma, a researcher at private thinktank Tokyo Foundation, said that given government support, companies will be able to apply new technology to reducing usage of rare earths and expanding facilities to recycle used materials.

The shortage of such facilities in the past, due to low procurement costs, resulted in some companies exporting used rare earths as garbage, he said.

Now that supply of rare earths is a risk for company management, research is being carried out, for example, on cutting the use of dysprosium, one of the rare earths most vulnerable to China's export curbs, in magnets for hybrid cars and wind power turbines, he said.

I expect very speedy development as people become aware of the need and benefits of these new technologies, Hiranuma said.

Japan's rare earth imports from China in 2010 stood at 23,310 tons, accounting for some 82 percent of its total imports of the strategic metals.

They slumped in January, halving from volumes imported in December.

China, which produces 97 percent of the world's rare earths, slashed its export quota by 40 percent in 2010 from 2009 levels to about 30,000 tons and plans to trim it further this year.

China has also announced increased export taxes on rare earths.

($1=81.89 Yen)

(Editing by Edwina Gibbs and Joseph Radford)

China Japan Earth