China Has Begun Slashing Commodity Production On Overcapacity Fears

China is bringing back production restrictions for select commodities, after removing such restrictions during the recent global crisis.

The Ministry of Industry and Information Technology (MITI) announced capacity closures this week, and more will come via the National Development and Reform Commission, says Citi's Alan Heap.

Citi:

Coal – Further Closures — MIIT announced a target to cut 21Mt of coking coal capacity by 3Q 2010, following the 82Mt closed in 2009. Of this only 5Mt is in Shanxi, where most of the closures have occurred so far.

Aluminium Capacity Closures — The target announced by MITT this week of 340Kt, takes the total to 1.7Mt by 2011. Older plants are targeted which use Soderberg technology and low Amp (<100kA) cells.

Note that the coking coal cuts are of particular interest for dry bulk shipping investors such as those in Dryships (DRYS) or Eagle Bulk (EGLE) given that less domestic production means that more will have to be imported via seaborne routes, which is positive.