UPDATE 2-China's Shaanxi rations power amid worsening shortage

(Adds analyst comment, smelter output cut)

By Jim Bai

BEIJING, July 10 (Reuters) - China's Shaanxi province began to ration power supplies on Thursday, local media said, joining about a dozen provinces in what could be the worst summer power shortage in four years barely a month away from Olympics.

The spreading woes came despite China's recent power tariff hikes and coal price caps that analysts said were far from enough to assuage power generators' losses and even backfire for them as coal miners could cut supply or feed them with low quality fuel.

The power shortage, estimated by provinces at 20 gigawatts or more at the peak, has forced China's top 20 aluminium producers to cut production by 5-10 percent from July, smelter sources said earlier on Thursday.

The rationing in Shaanxi, a northwestern region traditionally in surplus of electricity in summer, followed record brownouts in neighbouring Shanxi since late June and severe blackouts in the capital of nearby Henan.

(For a factbox of China's power shortage by province, click [ID:nPEK98235]

Unlike the previous shortage in summer of 2004 which was caused by insufficient installed capacity, analysts said this time the power squeeze is a result of power plants scaling back generations in the face of soaring coal cost and lagging power tariffs.

An anticipated cut from hydropower generations in western regions, including the earthquake-struck Sichuan province, also contributed to the shortage.