Meanwhile, the deputy director of Guangdong Province's Department of Land and Resources told China Daily his team supervised a crackdown at an illegal rare earth mining site in Potou town, Lianping County.

The mines are spread across a large area in Guangdong, which makes them difficult to monitor for illegal activities, especially since illegal mining and smuggling of rare earths generate high profits, said Xiao Fangming, director of the Guangzhou Research Institute of Non-Ferrous Minerals.

Xiao has suggested strengthening the monitor of the rare earth separating plants in the province, which have a total combined capacity of 15,000 metric tons annually.

The government has approved the mining of 2,000 metric tons of rare earth oxides a year in Guangdong, but actual production surpassed 40,000 metric tons because of illegal mining.

Eoin Treacy's view My view – Chinese production of rare earth metals is the single most important factor in the fate of rare earth metal miners listed in Australia, Canada and the USA. The high profit margins in Illegal production coupled with contracting sanctioned supply has contributed to thriving black market in these commodities. The result is that supply has increased to the point that has overcome demand and prices have fallen substantially. This has put severe downward pressure on the share prices of related shares.

The Chinese authorities have a vested interest in controlling the supply of these vital metals but have so far been ineffectual in clamping down on illegal production. If they eventually succeed in this aim, it would act as a positive catalyst for the metal prices and related shares.

Chinese listed Inner Mongolia Baotou Steel Rare Earth Hi-Tech remains a clear outperformer. It has unwound the overbought condition relative to the 200-day MA and has found at least short-term support. A sustained move below the trend mean would be required to question the consistency of the medium-term uptrend.

While a number of other rare earth metal companies, listed outside China, had rallied rather well in the first quarter, almost none held their gains. Alkane Resources is representative of the some of the sector's better performers. It has at least stabilised in the region of the October low and firmed impressively this week. A clear downward dynamic would be required to question medium-term scope for some additional upside. (Also see Comment of the Day on March 7th for a review of the related shares).