China is facing an energy crisis. Here's how to play the market, according to Jefferies

Published Wed, Sep 29 20217:30 PM EDT

China's power shortages are "getting serious" — but some stocks and commodities could benefit from the energy crisis, according to Jefferies. The power crunch has already spread to 20 provinces and comes months before the highly anticipated Winter Olympic Games is due to be held in Beijing in February 2022, Jefferies analysts said on Tuesday. "Not only is supply being hit, but end demand, particularly in manufacturing related sectors, is also being impacted," they wrote in a note. The current power crunch in China is a result of more regulatory pressure to curb energy consumption and energy intensity. It comes after China President Xi Jinping announced in September that the country is aiming to reach peak carbon emissions by 2030 and become carbon neutral by 2060 . China's power shortage has raised questions about its economic outlook, and several economists downgraded their forecasts for its 2021 GDP growth citing energy constraints as one of the headwinds. Commodities picks After examining 11 commodities, the analysts identified cement, poly and lithium as "best positioned to benefit" from the energy crunch. Materials companies are "most sensitive" to average selling price changes, and a 1% change in ASP is equivalent to a 1.5% to 7% change to earnings, Jefferies analysts said. "Cement and Lithium have the biggest swing to earnings given ASPs have increased by 27% and 50% in the last month and are the biggest winners among power shortages," the analysts said. Cement inventories have also fallen to a "historical low," while supplies are running low for leading polysilicon, and producers only have less than 3 days of inventory, they said in a Tuesday report. Stocks to buy Jefferies said it's time to buy cement producer China National Building Material , polysilicon-maker DAQO New Energy as well as lithium manufacturer Ganfeng Lithium , as they will be beneficiaries from this trend. Efforts in China to cut emissions and a shortage in coal supplies have resulted in power shortages countrywide. That's interrupted production at factories including those supplying Apple and Tesla , reported Reuters. The additional headwinds from the power crunch has led to firms — including Goldman Sachs, Nomura, S & P Global Ratings and Fitch — slashing their China economic growth forecasts. — CNBC's Yen Nee Lee contributed to this report.

A person walks past a coal fired power plant in Jiayuguan, Gansu province, China, on Thursday, April 1, 2021.

Qilai Shen | Bloomberg | Getty Images

China's power shortages are "getting serious" — but some stocks and commodities could benefit from the energy crisis, according to Jefferies.