GUANGZHOU -- Many rare earth businesses have reduced or halted production in Guangdong due to sluggish market demand, according to industrial observers.

Rare earth production is in the doldrums in many Chinese provinces, including the southern province of Guangdong, which is a major rare earth producer in China.

Yan Xiaobi, vice minister of the province's rare earth guild, said the surge in rare earth price exported from China in the first half of last year had prompted downstream industries to look for substitutes while stimulating overseas companies to restart rare earth production.

The result has been a drop in market share for Chinese rare earth producers. The lacklustre domestic and global market also dampened China's export, Yan said.

According to official statistics, China exported 5,000 tons of rare earth in the first half of 2012, with the annual exports expected at 10,000 tons, down from 16,000 tons last year.

Price of the rare metals also slumped from its peak in July, 2011. Prices of several metals, including lanthanum oxide and praseodymium oxide, have dropped by more than half compared with last year.

A spokesman from Guangdong Rising Nonferrous Metals Group Co Ltd, a leading rare earth producer, said the company's net profit declined by 90 percent year-on-year in the first half of 2012 due to drops in sales and prices.

"The company has to axe part of its capability due to waning demand of the downstream sector and the policy cap on the metal's output," the spokesman said.

Another spokesman from a Guangdong-based company said the demand of the downstream enterprises were dampened by fears that the metals' price would further decline. Many companies has taken a wait-and-see attitude, he added.

Experts said the lull in rare earth production may continue, and that it may take a year for the price and demand to return to normal.

China is the world's largest producer of rare earth metals, supplying more than 90 percent of the global demand for the metals, although its reserves account for just 23 percent of the world's total.