Henan Yuguang Gold and Lead (600531.SS: Quote, Profile, Research, Stock Buzz), China's top lead producer, has reduced lead production by a third due to repairs, while smaller competitors in the area struggle with reduced power supplies.

    Lead smelters in Yunnan province are also cutting production after local authorities closed small mines, reducing concentrate supplies.

    Falling output could fuel worries over supply from China to international markets in coming months given net exports from the country, the world's top lead producer, fell to a multi-year low in June.

    "International prices reflect the China factor. Production cuts in China certainly will have an impact on prices, depending on how long cuts will last and lost quantity," said Judy Zhu, Shanghai-based commodity analyst at Standard Chartered Bank.

    Yuguang is cutting lead output by about 300 tonnes a day and its 310,000 tonnes annual lead capacity plant would not resume full production until mid-August, a trade manager said.

    "We are producing about 600 tonnes a day, compared to the normal level of 900-1,000 tonnes a day," the trade manager in Henan province told Reuters.

    He said the firm had picked this time to repair facilities partly because of reduced power supplies in Henan, even though the plant was equipped with power generation capacity.

    But reduced power supplies were forcing smaller lead plants in Henan to cut production, the manager said.

    Xinling Refining Company in Lingbao city has received less electricity this month and has closed non-lead smelting facilities to squeeze electricity to feed a 100,000 tonne-per-year lead smelter, a senior executive said.
    "We hope the supply will not fall further," said the executive in Lingbao, home of another three 100,000 tonne-per-year lead smelters.

    Worries about supplies from China have supported lead prices on the London Metal Exchange. Contract prices MPB3 soared by more than 5 percent on Tuesday in London, hitting $2,160 a tonne, the highest level since May 22, after news hat China's net refined lead exports fell to 1,158 tonnes in June.

    Smelters' production cuts and strong LME prices have driven up Chinese prices of spot refined lead by nearly 5 percent this month to 17,700 yuan ($2,592) a tonne on Wednesday.

    "End-users are in panic and want to take metal without asking prices in advance. They are afraid that prices would rise further and they may not be able to buy as much metal as they need," the trading manager at Yuguang said.

    In Yunnan, power supply is not a big concern.

    But about a quarter of lead smelting capacity in Gejiu city may have stopped production after local authorities closed small mines for safety issues before the Beijing Olympics, a senior executive at Shadian Refinery said.

    He said reduced supplies of concentrate had driven up prices of crude lead, cutting margins of refined metal.

    "We are going to close down production in two days for repairs for at least one month. Then we will see market situations before resuming production," he said.

    Gejiu has up to 600,000 tonnes of annual lead refining capacity, including the 70,000 tonnes at Shadian Refinery, and nearly 500,000 tonnes of smelting capacity.