July 10 (Bloomberg) -- China's biggest aluminum producers, the largest in the world, agreed to cut output by as much as 10 percent to ease a power shortage, sending metal prices to their highest ever.

Aluminum Corp. of China Ltd. and 19 of its peers signed the accord today to curb supply by 5 percent to 10 percent, the China Nonferrous Metals Industry Association said in a statement. That equates to a maximum output cut of 400,000 metric tons in the second half, the group said. Aluminum gained as much as 6 percent to $3,380 a ton on the London Metal Exchange.

The reductions 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 significantly change the balance of the aluminum market in China and globally,'' said Chris Ding, an analyst at China International Capital Corp. in Beijing.

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 reduction at a meeting today in Shandong province. The cuts will save 5.8 billion kilowatt-hours of electricity, the association said.

Power Shortages

The 20 companies ``also call for other producers in the country to cut output, showing support for the Beijing Olympic Games and creating an easier market condition for the industry,'' the association said in the statement.

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 thousands of small and unsafe coal mines.

Power accounts for between 30 percent and 40 percent of the cost of making aluminum. China produced 12.6 million tons of the metal last year.

``They have very difficult power availability issues and are now very large exporters of aluminum,'' Michael Rawlinson, head of mining, resources and energy, at Liberum Capital Ltd. in London, wrote today. ``Cutting aluminum supply alleviates the power crisis without hurting the goal of self sufficiency.''

Exports of aluminum and alloys jumped 43 percent to 123,538 tons in June from a month earlier, customs data showed. That's the highest since August 2006.

Aluminum Rallies

China is expecting power shortages in the southern, eastern and central provinces in the summer as demand exceeds supply, the government said in June. It hosts the Olympics in Beijing next month.

Aluminum prices have rallied 36 percent this year because of earlier supply disruptions in China and South Africa. The metal for delivery in three months on the LME traded at $3,280 a ton as of 6:03 p.m. London time.

Chinese aluminum prices may rise 7 percent to 21,000 yuan ($3,068) a ton, CICC's Ding said.

Norsk Hydro ASA, the world's fourth-largest aluminum producer, advanced as much as 11 percent in Oslo trading. Vedanta Resources Plc gained as much as 4.4 percent in London and Eurasian Natural Resources Corp. rose as much as 5.9 percent.

``This will be positive for all aluminum producers,'' said Andrew Keen, an analyst at Sanford C. Bernstein in London. ``Norsk Hydro is the most pure-play aluminum stock in Europe and you will probably see it benefit most directly.''

China Power

China shut 2.5 percent of its coal-fired power plants as of July 6, data from the State Grid Corp. of China showed. Coal inventories at State Grid, the country's biggest power distributor, were enough for about 11 days of consumption as of July 6, down from 15 days in March.

Shanxi province this week issued a ``red alert'' and said it will limit power supplies to energy-intensive factories. Henan province has restricted electricity use in eight cities because of fuel shortages, Xinhua News Agency said June 27.

Five smelters in Shanxi this week said they cut output because of a power shortage.

To contact the reporter on this story: Xiao Yu in Beijing at yxiao@bloomberg.net

Last Updated: July 10, 2008 13:28 EDT