China's biggest aluminum producers, the largest in the world, agreed to cut output by up to 10 percent to ease a power shortage, sending metal prices to a record.

Aluminum Corp of China Ltd and 19 of its peers signed the agreement yesterday to curb supply by between 5 percent and 10 percent, said a government official who asked not to be identified. Aluminum gained as much as 5 percent to US$3,350 a ton on the London Metal Exchange after the announcement. Norsk Hydro led gains by shares of non-Chinese producers.

The cuts may help alleviate a sixth year of power shortages in the world's fourth-largest economy and curb Chinese aluminum exports that jumped 43 percent in June. The energy used by China's aluminum smelters each week is enough to provide power for more than 2 million people for a year.

"The production cut will remove at least 500,000 tons of output, which will significantly change the balance of the aluminum market in China and globally," Chris Ding, an analyst at China International Capital Corp, told Bloomberg News.

The companies, which account for 70 percent of the country's output, the Ministry of Commerce and the China Nonferrous Metals Industry Association agreed on the cut at a meeting yesterday in Shandong Province, the official said.

China is grappling with power shortages caused by economic growth that averaged more than 10 percent annually in the past 5 years. Government control of power prices means utilities can't afford to buy enough coal. Aggravating the shortfall, the government has shut small and unsafe coal mines.

Power takes up from 30 percent to 40 percent of the cost of making aluminum. China produced 12.6 million tons of the metal last year.

Aluminum Corp, the nation's largest producer, Qingtongxia Aluminum Group Co, Yugang Longquan Aluminum Industrial Co, Yunnan Aluminum Co were present at yesterday's meeting, the official said.

Zhao Shengmao, deputy general manager of Qinghai Qiaotou Aluminum Electricity Co who was at the meeting, confirmed the agreement. He declined to comment further on the meeting.

"Cutting aluminum supply alleviates the power crisis without hurting the goal of self sufficiency," Michael Rawlinson, head of mining, resources and energy, at Liberum Capital Ltd, said yesterday.

(Shanghai Daily July 11, 2008)