* China loses WTO case over export controls
* Molycorp, Lynas to ramp up output from new mines
* Price spike in 2010 spurred consumers to find substitutes
By Eric Onstad
LONDON, March 26 (Reuters) - Rare earth elements will drop further in value this year as new mines boost output and after China lost a trade dispute over its export controls, while demand in high-tech products disappoints.
Prices of the 17 elements used in technologies such as smartphones and electric cars have mostly been stuck in tight ranges after skyrocketing and then tumbling in 2010-2011.
A few rare earths attempted a rally late last year, but remain well below the spike three years ago after China clamped down on exports.
The world's second-biggest economy, which not only produces 90 percent of global rare earths but is the largest consumer, lost a dispute at the World Trade Organization on Wednesday.
A consultant said a price war could break out after the United States, European Union and Japan won their case over export restrictions they said gave Chinese companies an unfair competitive edge in key high-tech sectors.
"If the recent WTO ruling leads to a softening of China's rare earth industry policy measures, the nation's only tangible defence becomes competing head-to-head on price with emerging global producers," said Ryan Castilloux, founding director at Adamas Intelligence in Sudbury, Ontario.
Investors are already worried about excess supply as U.S. mining group Molycorp Inc and Australia's Lynas Corp boost output at their new mines.
"We still remain concerned about the likely downward pressure on rare earth pricing if Molycorp achieves its production guidance by the fourth quarter of this year," analyst Michael Gambardella at JPMorgan said.
"We continue to believe that all rare earth prices will move meaningfully lower as Molycorp and Lynas ramp to just their full Phase 1 capacities," he said in a note.
Molycorp aims to boost output to 20,000 tonnes a year, after producing about 1,000 tonnes of rare earth oxides in the fourth quarter.
"If we start seeing new mines being constructed outside of China and demand does not grow to absorb this new production, then China may see its REE (rare earth element) industry, at least the upstream end of it, under threat, leading it to undercut competitors on price," Castilloux said.
China has been struggling to control illegal mining and smuggling in its rare earth industry despite a two-year campaign to consolidate output in the hands of big state-owned miners.
SOME PROJECTS NOT VIABLE
Praseodymium (AM-CNF-PROXD) - used in aircraft engines as well as magnets for electric vehicles and wind turbines - rocketed more than 12-fold from $19.75 a kg in January 2010 to a peak of $250 in August 2011.
It slid to $74.50 early last year after speculators liquidated positions and has bounced back to $122.50 as consumers ran out of stocks, but Gambardella expects it to head back down to $55 by next year.
The additional mine output is expected to pressure "light" rare earths such as praseodymium, more than their "heavy" cousins, which are more scarce.
Other rare earth projects in the pipeline, however, may not be viable at current low prices, said analyst Luisa Moreno at Euro Pacific Canada. "It is going to be difficult for companies to all start production within the next six years," she said.
"It is very difficult for mining companies to get funds and for rare earths companies particularly after the fall in rare earths prices."
The sizzling rally three years ago left damage in the market as many consumers took fright at the soaring prices and found substitutes.
Some bullish investors had hoped for a surge in demand for rare earths used to make powerful magnets for electric cars, but
Castilloux said some vehicle makers were shunning rare earths to cut costs and avoid supply risk.
Luxury vehicle maker BMW's Mini E electric car and electric car manufacturer Tesla Motor's Roadster are powered by induction motors that do not use magnets made with rare earths, he said.
"Demand is quite modest actually, not bad, but quite modest," said Charles Swindon, managing director of RJH Trading in London. "The market is still somewhat precariously balanced between supply, demand and sentiment." (Additional reporting by Harpreet Bhal; Editing by Veronica Brown and Dale Hudson)
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