China's rare earth sector is being hurt by low prices, as the country lost in a key lawsuit at the World Trade Organization (WTO) against the US, Europe and Japan.

Earlier, China Minmetals Rare Earth Co. Ltd, reported a steep decline in profits for the quarter ended in March 2014. The company's profits declined 94.1% to 1.6m yuan ($261,341, €189,229, £155,551), as its revenues fell 98.5% to 3.3m yuan.

In 2013, the company reported a 20.5% decline in net profits and a 57.6% drop in revenues. In addition to the weak profits, the company suffered from overproduction during the year, as its rare earth stockpiles also surged by 167.8%.

"The grim outlook of the global economy and sluggish domestic demands hammered rare earth prices and weighed on mining companies," Xinhua quoted the company as saying in a statement.

Rare earths are a group of 17 elements in the periodic table valued for their magnetic and conductive abilities. They are used in high-tech products such as rockets, electric cars and smartphone touch screens.

China produces more than 90% of the world's rare earths, and the industry is dominated by three giants – Inner Mongolia Baotou Iron & Steel (Group) Co, China Minmetals Corporation and the Aluminum Corporation of China.

China earlier imposed strict rare earth export quotas in 2010, citing problems of environmental damage and illegal mining. Prices for the 17 elements have already been rising to sky-high levels amid worries about China's monopoly in the sector.

In a lawsuit against import restrictions, the WTO ruled in favour of the US, Europe and Japan. China is preparing to appeal against the ruling.

After companies such as US-based Molycorp and Australia's Lynas Corp boosted their production, prices of most rare earth elements have declined by about 70% or more due to excessive supply.

The WTO ruling and the price war between the companies are expected to bring down prices further.

"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," Reuters quoted Ryan Castilloux, founding director at Adamas Intelligence in Sudbury, Ontario.

"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."