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Last week the Spanish government announced plans to cut subsidies for solar photovoltaic (PV) power by about 75%. Although the nation expects to surpass its 2010 goal for installed solar by four fold, the down side is that generous subsidies for the industry have resulted in a ballooning tariff deficit for the country, which has risen to 4.85 billion euros, upfrom 745 million last year. Reuters reported that lending to the Spanish photovoltaic plants has risen to $3.59 billion in the year to day, up from $230.9 million euros last year and $192.44 million in 2006. As a result, the Spanish government will as the energy regulator to cap subsidies for new PV solar capacity at 300 megawatts (MW) per year--200 MW for rooftop systems and 100 MW for ground-mounted systems, which have been the highest growth area. CSP has been slower than PV technology in its emergence on the renewable energy scene, but expectations for the technology, which focuses the heat of the sun to produce steam to drive electricity producing turbines. Projects underway in the U.S. and Spain are expected to produce electricity that is cost-equivalent to electricity produced from burning coal or natural gas.

China will begin subsidizing the production of wind power turbines, according to an announcement made last Friday. The subsidy will only be available to Chinese majority-owned turbine manufacturers, who will be eligible to receive $88 per kilowatt for the first 50 units capable of generating at least 1.5 megawatts of power. In addition, the subsidy can only be used for research and development. This is the first Chinese subsidy specifically focusing on the wind power industry and it is meant to make Chinese companies more competitive with turbine makers like GE (NYSE: GE) in the U.S., Vestas Wind Systems (VWS.CO) in the Netherlands and India's Suzlon (SUZL.BO).

The Ministry of Finance announced that a subsidy package worth RMB14.0B (US$2.22B) will be introduced to encourage sales of energy-saving desktop computers and air conditioners. The subsidy program will last one year and it is hoped that it will result in the market share of energy-saving products rising to 40% of the total.

The Chinese government announced that it will terminate its old-for-new home appliances subsidy scheme on 31st December 2011. The subsidy, which was introduced on 1st June, provides consumers in Beijing, Shanghai, Tianjin, Fuzhou, Changsha and the provinces of Jiangsu, Zhejiang, Shandong, and Guangdong with a 10% discount on a selected group of appliances. These include televisions, refrigerators, washing machines, air-conditioners and computers. All of these appliances are major end use segments for copper semis products.

The Chinese government said that it would expand an existing subsidy program to encourage the purchase of new vehicles and home appliances, thereby boosting domestic spending. China will now allocate 5B yuan ($733M) for owners of light trucks and passenger vans who upgrade to new models. It also plans to spend 2B yuan ($293M) to fund discounts of new purchases of home appliances when customers turn in old goods, which will possibly give support to domestic copper demand. The plan will apply to almost all household appliances, including air-conditioners, television sets, refrigerators, washing machines and computers. Exports of these have been weak and the plan will help local producers to de-stock more quickly.

"Leading European industrialists believe the future of manufacturing on the continent will increasingly revolve around green products, often backed by government subsidies."

Chinese copper tube demand is robust in Q3, primarily due to 'unexpectedly good' sales on air-conditioners and many distributors are running out of stock, according to local manufacturers. There are two main reasons for the high demand. Firstly the weather is hotter than usual this year with temperatures rising to 38 degree Celsius in many parts of China. Secondly, the demand for air-conditioners is being boosted by the government's home appliance subsidy scheme as well as local retailers' discounts on air-conditioner sales. This is going to have a positive effect on copper consumption as copper tube used in air-conditioners is mainly refined copper.

A move which the industry claims would be devastating

Shipments of copper wire and cable increased for the second consecutive month in June, reaching 57,300t. This represents a 1.0% increase y-o-y and an 8.0% increase m-o-m. Shipments to the automotive sector performed particularly well, increasing 36.3% y-o-y, following the introduction of subsidies for the purchase of fuel-efficient cars. Additionally, reconstruction efforts from last year's earthquake and tsunami disaster continue to support demand.

According to the Japan Copper and Brass Association, Japanese output of rolled copper products rose by 21% y-o-y to 75,094 tonnes in July 2010. The figure represents a 21-month high, supported by strong exports to China and other Asian countries. It was also a 3% increase from the previous month. It was reported that Japanese output exhibits steady recovery; however, a stronger yen and the end of government subsidies for eco-friendly cars at the end of September will challenge the demand outlook in the second half of the year. In addition, the Ministry of Finance said that Japan's refined copper exports rose by 5% y-o-y to 44,875 tonnes in July, the first y-o-y increase in nine months. China accounted for 45% of total exports in July, compared with 41% in June.

Mitsui Sumitomo Metal Mining Brass & Copper, a Japanese brass and copper alloy strip fabricator, plans to produce an average of 5,450t/m in H2 FY2010-2011, ending in March 2011. The company holds client orders of several hundred tonnes until the end of 2010 and considers that demand will be steady. However, it remains cautious about demand from the automotive industry as it may decline in early 2011. According to production plans, H2 FY2010-2011 output in Saitama, Japan, will amount to 3,600t/m whilst that in Mie, Japan, to 1,850t/m. Actual production in H1 FY2010-2011 reached 5,400t/m (3,600t/m in Saitama and 1,800t/m in Mie). It was reported that the automotive industry accounts for 45% of the company's output. Automotive makers are expected to cut their output by 20%, now that the Japanese government's eco-friendly car subsidy scheme has ended. As a result, automotive component makers are anticipated to cut production by 5-10%. To respond to that possible downturn, Mitsui Sumitomo Metal Mining plans to increase sales to consumer electronic product manufacturers.