By James T. Areddy Of THE WALL STREET JOURNAL SHANGHAI -(Dow Jones)- Prices for the vital industrial minerals known as rare earths appear to have moderated in recent weeks following two years of relentless gains, as the supply outlook brightens and dominant producer China faces possible legal challenges to export restrictions. Rare earths, which is shorthand for a collection of 17 minerals used to make products from hybrid-car batteries and oil-refining agents to military equipment, have been surging with prices of some rising more than tenfold since 2009 amid panic buying. China controls almost the entire global supply, and its export limits, mine restructurings and other policies have sparked a frantic scramble to secure the obscure metals. Determining prices for rare earths is tricky because the market for them is illiquid and only small quantities are produced globally. Some of the biggest buyers and sellers complain that they have little clarity on pricing. But Australia's Lynas Corp., which publishes references related to what it expects to produce at its Mount Weld deposit in the state of Western Australia, says prices for lanthanum, often used to make catalysts for refineries, has dropped to $92 per kilogram as of Sept. 19 from $135.02 in the second quarter. Prices for cerium, sometimes used in glass, have also dropped to $92 per kilogram from $138.29 in the second quarter, Lynas says. On Tuesday, a J.P. Morgan Chase & Co. analyst cited falling rare-earth prices as a reason to slash his outlook for Colorado-based Molycorp Inc., a rare-earths producer often considered an industry bellwether. Its New York Stock Exchange-listed shares subsequently tumbled nearly 22%.The shares rose 1.4% to $42.03 in midday trading Wednesday. Molycorp officials couldn't be reached Wednesday for comment. In an interview earlier this month, Molycorp Chief Executive Mark Smith said he has seen signs of "demand destruction" for rare earths, as companies take steps to reduce their rare-earths use, such as glass makers recycling cerium. But, expressing confidence in prices underpinned by Chinese policy, he said, "I go back to the supply-demand relationship in this industry." Rare-earth prices remain far above where they were just two years ago. Lanthanum, for instance, still hovers 18 times above its 2009 price, while prices for cerium are still nearly 25 times higher, according to Lynas. Indeed, some international prices haven't fallen at all, in particular those that are known as heavy rare earths, like terbium, which is used in advanced lasers and optics. Still, some industry observers see reason to hope for an end to what has been constantly climbing prices. "As a general rule, people think prices are going to drop," says Luther C. Kissam, chief executive of Albemarle Corp., a Louisiana maker of specialty chemicals that imports Chinese lanthanum. Companies are looking for ways to reduce their rare-earth use, taking some pressure off demand. Manufacturers and industrial companies such as W.R. Grace & Co. say they have found ways to reduce the rare-earth content of their products. Also, Grace said last November that, due to China's rare-earth export crimps and surging prices, it would charge customers of its fluid catalytic cracking catalysts a surcharge that it didn't specify. In subsequent filings, including its 2010 annual report, Grace cited "the cost of and availability" of rare earths among its risks. For the first half of 2011, it reported $47.8 million in accounts receivable and inventories in the period relating to rare earths. "We expect that rare earth market conditions could change quickly, and they remain an uncertainty for the foreseeable future," Grace said in the half-yearly report last month. But Grace also said it was developing catalytic products with low or no rare earth content, and it said many customers were receptive. Company officials declined to comment. Still others have moved production to China, freeing them from China's export restrictions. Hitachi Ltd. is considering moving some production of high-grade magnets to China, among many other options, said one executive of the Japanese company. "Generally speaking, it's wise for a company's management to keep all options open," the executive said. Trade lawyers, meanwhile, predict the legality of China's policy to allocate supplies to foreigners using government quotas will shortly be undermined by an unrelated, but similar, case being considered by the World Trade Organization involving a separate class of minerals. "This is a short-sighted and self-defeating policy by China," said James Bacchus, global chairman of law firm Greenberg Traurig LLC and a former chief WTO judge. China has said it is tightening export limits on rare earths because processing them takes a toll on the environment. Beijing says it doesn't want to remain the world's near-monopoly producer. A much-watched mineral now is neodymium, an ingredient in permanent magnets that are used in wind turbines and hybrid cars. China's largest producer of rare earths this week announced price supports for it, which could further encourage industry to locate in the country. Lynas says the price of neodymium has been flat since midyear on international markets at around $265 per kilogram but has dipped in China. It isn't clear whether the pause will last. Given the "wild card" of Chinese policy, volatile pricing is here to stay, according to Edward Richardson, vice president of specialized Indiana magnet maker Thomas & Skinner Inc. "Without dependable and consistent data, we are left with stories, anecdotes and perceptions," he said in an email. -Norihiko Shirouzu in Beijing contributed to this article.