Solar; Wind: "China will crush overcapacity!"

A followup to yesterday's "Solar; Wind: China moves to address overcapacity in emerging sectors like wind power (And Polysilicon)" from FT Alphaville:

Here’s how FT Alphaville celebrates 60 years of Chinese Communist Party rule — with a bit more detail on the State Council of China’s mandate to curb industrial overcapacity, as announced on Tuesday.

From Exane BNP Paribas analysts Su Zhang and Arnaud Pinatel:

On 29 September, the State Council of China released … a mandate to curb overcapacity in eight industries. These industries are steel, cement, flat glass, coal chemical, polysilicon, wind power equipment, aluminium and ship building. The rationale behind this move is clear — to utilise the opportunity presented by the crisis to reform its economy. We quote the State Council’s statement as released (translation from Chinese): “If the overcapacity and overbuilding in certain sectors is not regulated and controlled, (…), we may miss the historical opportunity given by the international financial crisis to push for structural reform. “

Specifically, the mandate requires all provinces to work out a plan to completely phase out obsolete cement capacity — estimated to be 500m tonnes — over three years. New capacity in the steel and aluminium industries is being banned, and new build-projects for solar panel-makers will be strictly controlled.

Unsurprisingly, a cut in capacity means upward pressure for the prices of those commodities, according to the BNP analysts....MORE