Supply chain

China’s Electricity Shortage Threatens Supply Chain Disruption, Rising Prices | New

EElectricity customers across China have been forced to spend periods of the past few weeks in darkness as utilities shut down lights to deal with severe power shortages.

The consequences lead to forecasts of additional obstacles to a global economic recovery, with disruptions to the world’s second largest economy expected to raise prices and exacerbate existing supply chain problems.

The Chinese manufacturing purchasing managers index, an indicator of the general health of the sector, contracted to 49.6 for the month of September, the lowest since February 2020, at the start of the coronavirus pandemic.

Power constraints didn’t help. The country’s largest industrial users of electricity, especially manufacturing operations, were the first victims of rationing, as power supply to homes was a priority, according to Lauri Myllyvirta, senior analyst at the Energy Research Center. and Clean Air, based in Helsinki.

CHINA ALSO MUST CUT THE COAL AT HOME FOR THE WORLD TO REACH THE PARIS CLIMATE GOAL

Numerous reports from the past week detail factories facing shutdown or finding ways to work around shortages. A shoe factory in Guangdong province rented a diesel generator at a cost of $ 10,000 per month to maintain operations. Its manager said it was the “worst year since we opened the plant almost 20 years ago”, New York Times reported.

China is a major global producer of everything from machinery and plastics to earth metals, so any industry disruption of this magnitude, especially one that affects its power sector, is of tremendous importance to the world. .

“This will put pressure on prices and affect supply chains,” Myllyvirta told the Washington Examiner.

As many as 19 Chinese provinces were experiencing some form of electricity rationing at the end of September, according to an analysis by Hong Kong-based research and consulting firm The Lantau Group. The outages ranged from four to ten days, especially for large industrial customers.

Residents were not completely spared and would face higher energy bills despite their preference during the electricity crisis. Those in northeast China’s Liaoning, Jilin and Heilongjiang provinces have been hit particularly hard and have suffered power outages in recent days as coal generators in the region were running at 50 percent of their capacity last week, according to the Chinese outlet. Caixin reported Tuesday.

Elsewhere, the Guangdong Energy Authority has asked residents to reduce their energy consumption by limiting the use of elevators to the first three floors of buildings and keeping thermostats above 26 degrees Celsius, or around 26 degrees Celsius. 79 degrees Fahrenheit, according to official media.

As for the genesis of the shortage, the simple explanation is that the domestic energy supply has not been able to meet the increased demand fueled by the global recovery, but Myllyvirta has notably questioned Chinese regulators electricity for not having been sufficiently dynamic with price controls – not a shortage of coal, on which the Chinese grid relies heavily.

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“Essentially, the regulator put pressure on coal mines to keep prices low along with pressure on generators to produce at low prices, which made it unprofitable to keep buying coal and keep making. operate power plants, ”he said. “And now when the global energy prices fell silent, that just turned things up.”

“This is something that happens periodically in China, economic policy and energy policy just break down. Much of it is an economics manual, but the government doesn’t always want to follow the manual. economy, ”Myllyvirta said.

The Chinese authorities are reportedly working to bring the electricity crisis under control, having ordered state energy companies to secure adequate fuel supplies for the winter at all costs. This effort may well contribute even more to the already high fuel prices around the world, Myllyvirta said.

“It’s just the scale of the Chinese market that is important to keep in mind,” he said. “China obtains less than 10% of its coal from overseas … so very small changes in China’s demand for coal can have a major impact on the maritime market.”

Original location: China’s power shortage threatens to disrupt supply chain and raise prices

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