China cut its quotas on first-half exports of rare-earth metals around 35%, a move likely to feed trade tensions and concerns among global buyers after an even deeper cut late this year.

China supplies around 95% of the world's rare-earth metals, which are used in high-tech batteries, television sets, mobile phones and defense products. Beijing's decision to cut export quotas by 72% for this year's second half sparked criticism that China was taking undue advantage of its position to raise prices.

A supply crunch would have its deepest impact on Japanese technology manufacturers, such as Hitachi Ltd., but the problem extends further. Sumitomo Corp. and other companies process the metals and ship them world-wide, said Hallgarten & Co. strategist Christopher Ecclestone. Motors for Dyvacuum cleaners contain magnets made of neodymium, a rare-earth element, while such aerospace companies as Boeing Co. and Lockheed Martin use rare-earth materials for guidance systems.

China's export quotas are stoking trade tensions less than a month before Chinese President Hu Jintao visits with U.S. President Barack Obama. "We are very concerned about China's export restraints on rare-earth materials," a spokeswoman from the U.S. Trade Representative's office said Tuesday. "We have raised our concerns with China and we are continuing to work closely on the issue."

In trade talks this month, U.S. trade officials were unable to persuade China to ease restrictions on rare-earth metals, according to a USTR report to Congress released last week. The report said the U.S. will continue to press Beijing on the issue and would consider bringing the matter to the World Trade Organization.

Xu Xu, president of the China Chamber of Minerals, Metals and Chemicals Importers & Exporters, said Tuesday it is legitimate for China to restrict exports of rare-earth metals and that such a policy doesn't violate WTO rules. Beijing has maintained that the export cuts are in line with sustainable development, citing concerns over environmental damage associated with mining the metals.

Quotas for the first half of next year will total 14,508 metric tons, down about 35% from a year earlier, China's Commerce Ministry said Tuesday.

The reduction doesn't appear to jibe with comments from Commerce Minister Chen Deming, who said this month that China would leave quotas for the minerals largely unchanged next year. China in the past has adjusted second-half quotas after evaluating first-half figures and consulting with industry participants, so the quotas for all of next year could end up in line with this year's level. The ministry said Tuesday that it hasn't set a quota for the full year and cautioned against inferring the full-year figure from the first-half quota.

Shipments of rare-earth metals will be capped at 10,762 tons for 22 approved Chinese companies and at 3,746 tons for 10 approved foreign companies and joint ventures with foreign partners, according to the ministry's website. That represents 34% and 37% declines, respectively. Pingyuan Sanxie Rare Earth Smelting Co., which has foreign investors, was allocated 62 tons, subject to confirmation by the end of March.

Rare-earth metals became a hot topic in September, when Japanese importers said China had suspended shipments of the metals.

In response to China's increasingly strict regulation of its rare-earths industry and soaring prices, major global consumers, such as Japan and the U.S. are seeking alternative suppliers, including Australia, Mongolia and Thailand. Japanese Prime Minister Naoto Kan in October agreed with Mongolian Prime Minister Sukhbaatar Batbold on a project to develop rare-earth metals in Mongolia. Sumitomo is developing a mine in Kazakhstan.

Australia's Lynas Corp. and U.S.-based Molycorp Inc. are ramping up production. Molycorp recently began blasting in an open-pit mine in the California desert that had been the world's dominant rare-earth supplier before mining stopped in 2002. Molycorp shares rose as much as 11% Tuesday morning before trading down for the day in late New York trading.

Chinese officials have said they welcome the additional production, saying it is irrational for China to supply the whole world's rare-earth needs with just 30% of global reserves. Diversifying supply is necessary, and "every country that has reserves should start to exploit their resources instead of relying on China," said Mr. Xu, of China's minerals chamber.

He predicted that rare-earth prices will increase, in line with prices for most bulk commodities, including copper, oil and iron ore.

But China remains confident its dominance won't be easily eroded. "I am confident that China will hold its bellwether position in the global rare-earth industry in the long term," said Wang Caifeng, a former senior official with the Ministry of Industry & Information Technology's raw-materials department.