By Kiyoshi Takenaka

TOKYO, Sept 29 (Reuters) - Japanese customers of rare earthmetals are looking elsewhere for supplies after a de facto ban onshipments from China, imposed as tensions flared between Japanand the dominant world producer of the minerals, added to worriesalready heightened by a cut in this year's export quotas.

Australian rare earths prospector Lynas Corp Ltd said onWednesday it had signed a contract with a major Japanese consumerto supply rare earth minerals produced in Malaysia.

Lynas, owner of the world's largest undeveloped deposit ofrare earths, did not identify the customer.

Toyota Motor Corp said it had set up an internal task forceto help diversify the sources of rare earth minerals itssuppliers use to build parts for its hybrid vehicles, to reducethe risk of relying too heavily on China.

China has resumed export licences for rare earth minerals,vital for Japan's key auto and electronics industries, ending thede facto ban, a trade house source told Reuters on Wednesday,although procedural delays continue to restrict shipments.

"There is a long line at the customs office," the source toldReuters.


The halt followed Japan's detention of the captain of aChinese fishing boat that collided with two Japan Coast Guardpatrol ships near disputed East China Sea islets, called Diaoyuin China and Senkaku in Japan.

The skipper was released and went home last weekend.

China accounts for about 97 percent of the world's totalproduction of rare earth elements, about half of which areexported to Japan.

They are used in a wide array of products from smartphones toLCD screens to electric vehicles, and a ready supply is crucialto manufacturing industries that keep Japan and other developedeconomies ticking.

China had already cut its export quotas for rare earthminerals in 2010 by 40 percent from 2009, the China ChemicalIndustry News said in August, as it reins in exports to feedstrong domestic demand.

Political tensions are also likely to persist with neitherJapan nor China showing any signs of softening their stance inthe dispute over the islets, which are near rich fishing groundsand potentially large oil and natural gas reserves.

Following the trawler captain's release, Beijing demandedcompensation and an apology, which Japan rejected, while fourJapanese nationals have been held in China since last week onsuspicion of violating a law protecting military facilities.

Japanese companies' cooperative agreements with China in theminerals sector have also proven vulnerable.

China's Yiyang Hongyuan Rare Earth has terminated a jointventure with two Japanese companies, Meiwa Corp and DaiichiKigenso, to produce value-added rare earth products, a metalswebsite said, stating that conditions were not ripe forcooperation. (Additional reporting by Yumiko Nishitani and Yuko Inoue inTokyo, Polly Yam in Hong Kong; Editing by Edmund Klamann)