China Yunnan power shortage cuts lead, aluminium output

* Power shortages cut lead output in Shadian, Yunnan

* Aluminium smelters run at lower rates

* Yunnan Tin, Yunnan Copper unaffected

By Polly Yam

HONG KONG, March 16 (Reuters) - A drought-driven power shortage in southwestern Yunnan is reducing lead production in China's fourth largest producing province, and also hampering aluminium output, industry sources said on Tuesday.

Yunnan, where hydropower stations account for nearly 70 percent of electricity capacity, has struggled to generate enough power since late last year because of the worst drought conditions in more than half a century, and is preparing to cut power supplies to a growing number of energy-intensive and high-polluting firms.

"Now 80 percent of smelters here have halted production," said Ma Xingkang, a smelter owner and chairman of Shadian Nonferrous Metals Association in Gejiu city, the main centre for lead production in Yunnan.

The Shadian district has 53 lead smelters with combined smelting and refining capacity of about 500,000 tonnes a year, Ma said, although these were already operating well below capacity.

He added that he expected the remaining 20 percent of smelters would stop production in a month, with low domestic prices of refined lead were also encouraging smelters in Shadian to stop operations to support prices , which have dropped more than 6 percent in the past 2 months.

China is the world's top lead producer and produced 3.87 million tonnes of the metal last year, of which more than 8 percent was produced in Yunnan.

Electricity-intensive aluminium smelters were also cutting production due to reduced power supply, an industry source said, estimating that large aluminium producers in Yunnan were running at around 90 percent of capacity.

"Aluminium smelters usually cannot stop production given their restart costs are high. The lead smelters are private firms and more flexible as opposed to state-owned larger companies," he said.

Production at state-owned Yunnan Tin , which is located in Gejiu and the top tin producer in China, was not affected by power shortages, an official in the firm's securities department said.

"We are in Gejiu but in a different district. We don't have a power shortage," he added.

Operations at Yunnan Copper , which is China's fourth largest copper producer and majority owned by state-owned Aluminum Corp of China, remained normal, an official in the firm's securities division said.

(Editing by Michael Urquhart)