UPDATE 1-China Jiangxi Copper building lead, zinc smelters

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By Polly Yam

HONG KONG, July 7 (Reuters) - The parent of Jiangxi Copper (0358.HK) (600362.SS) is building a 200,000-tonne-per-year lead smelter and a 200,000-tonne-per-year zinc smelter in China's Jiangxi province, a company spokesman said on Tuesday.

Pan Qifang said construction of the two smelters would be divided into two phases and completed within five years from 2009.

He said the parent might inject the lead and zinc smelters into the listed arm, China's top copper producer.

"Injection into the listed arm will depend on how profitable the two smelters are. It also needs approval from the local government," Pan told Reuters.

The parent is controlled by the Jiangxi government, which has endorsed the copper company to consolidate copper, lead and zinc resources in the province.

Copper mining and production is carried out by the listed arm, which can produce 900,000 tonnes of refined copper per year.

But China's lead and zinc markets were already oversupplied and Jiangxi Copper's new capacity would add to the supply further, Heng Kun, analyst at Essence Securities, said.

"Building smelters is good for local revenues and jobs. But how profitable will it be?" Heng said. "Smelters' profits often fluctuate and that is not liked by investors."

China is already the world's top lead and zinc producer.

Pan also said listed Jiangxi Copper had applied to Beijing for approval to buy electricity directly from power companies, which would help it save power costs.

"The power cost saving will be huge if approved," Pan said, adding that Jiangxi Copper consumed more than 2 billion kilowatt-hours (kWh) per year.

China has widened a scheme that allows big electricity users to buy power directly from generators, a tentative step towards reform of the power market, a report dated on June 30 on the State Electricity Regulatory Commission said.

The original pilot programme involving 15 power-hungry aluminium smelters was launched in March.