RPT-UPDATE 2-China's top aluminium smelters cut output

(Repeats from Thursday without changes) (Adds details, quotes)

By Polly Yam

HONG KONG, July 10 (Reuters) - China's top 20 aluminium producers will cut output by up to 10 percent as they struggle with power supply shortages and higher costs, smelters sources said on Thursday, sending prices of the metal up 5 percent to a record high.

It was unclear for how long the smelters -- who produced more than seven-tenths of output in the world's top producer of the metal -- will keep the cuts in place given a chance to capitalise on record prices.

In May China's aluminium production was 1.16 million tonnes, and at that rate a 10 percent cut would slash 83,000 tonnes of aluminium production a month.

But a looming power crisis in China could not only limit smelters' ability to reverse the cuts, agreed at a meeting in Shandong province on Thursday, but also threatens the at least 2.5 million tonnes of planned capacity expansion this year.

"The disruptions have only just begun. We believe these kinds of losses will characterise the aluminium market and will only intensify," said Gayle Berry, an analyst at Barclays Capital.

The prospect of falling supply, which if maintained could come close to eradicating the aluminium market's surplus, pushed the London Metal Exchange three-month contract MAL3=LX to a record $3,350 a tonne, and are up nearly 40 percent this year.

Smelter sources who attended the meeting, organised by the government-backed China Nonferrous Metals Industry Association and attended by the Ministry of Commerce, said the aim of the cuts was to push up aluminium prices and reduce power use.

"Why cut output? Why not? It would push up prices. Power supplies are also tight," a senior executive at one of the 20 smelters said, adding that his understanding was that the cuts would be based on current production.

If the smelters stick to the agreement, there could be a longer-term impact.

"The real significance of today's moves is not the removal of up to 1 million tonnes of aluminium from the market today, but the elimination of several million tonnes of potential output growth in the next four years," RBS Sempra economist John Kemp said.

LOSSES

Some smelters had made losses due to higher power fees and higher prices of raw materials, a draft of the agreement made at the meeting and obtained by Reuters showed.

The document also said smelters were urged to delay firing up new capacity that will come on stream soon, to help ease the country's power shortages ahead of the the August Beijing Olympics.

China's aluminium output was expected to rise to about 15 million tonnes this year, according to smelter officials and analysts in China, from 12.6 million tonnes last year.