UPDATE 1-China aluminium smelters start to reduce output as virus sends prices tumbling

* Shanghai aluminium sinks to 4-year trough below 12,000 yuan/T

* 70% of China smelters under water at current prices - WoodMac

* Chalco set to reduce Shanxi production by 70,000 T - Baiinfo (Adds Aladdiny production cut estimate in para 11)

BEIJING, March 24 (Reuters) - Chinese aluminium smelters have cut their annual production capacity by up to 340,000 tonnes in response to a coronavirus-driven plunge in prices of the metal, analysts estimate, chiefly by placing ageing pots under maintenance.

China is the world’s largest producer and user of aluminium, which is used in everything from cars to cans. Its smelters maintained high operating rates in January and February, even as demand from downstream manufacturers collapsed amid a shortage of labour following the coronavirus outbreak.

The resulting build-up in inventories - coupled with a broad sell-off in commodities as the virus spreads overseas - saw Shanghai aluminium prices touch 11,340 yuan ($1,603.94) a tonne on Tuesday, the lowest since February 2016. The price is down around 19% so far this year.

Aluminium at less than 12,000 yuan a tonne means “nearly 70% of the Chinese producers will be under water, and that’s certainly not sustainable,” said Edgardo Gelsomino, head of aluminium research at Wood Mackenzie. China has around 36 million tonnes of annual aluminium capacity.

With operations cash-negative, some smelters have put expiring pots - carbon-lined containers used to make aluminium - under “maintenance” but may choose to “wait for better times” before actually rebuilding them, Gelsomino said.

An executive with a smelter in China’s Henan province said his company had made exactly such a move, effectively cutting 50,000 tonnes of annual production.

“But we’re not in a rush to do the maintenance,” he said. “It looks like this market cycle will last quite a long time.”

Compounding smelters' problems has been a rise in the price of key raw material alumina SMM-ALM-AVEG due to virus-related restrictions on bauxite mine supply and transportation.

“Smelters saw their costs going up, but the price is going down because there is no consumption,” Gelsomino said.

Wang Hongfei, manager of the aluminium department at Antaike, said on Tuesday the Chinese research house estimated year-to-date cuts of 300,000 tonnes of annual capacity, mostly for maintenance.

Among other consultancies, Aladdiny said cumulative production cuts totalled 340,000 tonnes as of Monday and were expected to rise, while Baiinfo said 240,000 tonnes had already been cut and a further 60,000 tonnes would follow.

The Baiinfo total includes 70,000 tonnes from a smelter belonging to Aluminum Corp of China Ltd, or Chalco, in Shanxi, which will be fully cut by early April, it said. Chalco did not immediately respond to a request for comment.

Smelters are in a dilemma, Baiinfo said: selling aluminium at current prices will incur a loss, while not selling will hurt their cash flow.

($1 = 7.0701 Chinese yuan renminbi)

Reporting by Tom Daly; additional reporting by Mai Nguyen in Singapore; Editing by Kirsten Donovan and Susan Fenton