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China scrambles to fix power crunch, tame runaway raw material markets

China scrambles to fix power crunch, tame runaway raw material markets

FILE PHOTO: Power lines and wind turbines are pictured at a wind and solar energy storage and transmission power station of State Grid Corporation of China, in Zhangjiakou of Hebei province, China, March 18, 2016. REUTERS/Jason Lee/File Photo/File Photo/File Photo

BEIJING :Roiled by widening power curbs that have disrupted industrial operations, Chinese commodity producers and manufacturers may finally be getting some relief.

Beijing's top economic planner, the National Development and Reform Commission, said on Friday it will work to resolve the power shortages that have plagued production since June and have intensified in recent weeks as ambitious new measures to rein in emissions kicked in.

It singled out the gas-dependent fertiliser sector as being particularly hard hit and called on the country's main energy producers to fulfil their full supply contracts to fertiliser makers.

The impact of the shortages has, however, been broad. At least 15 listed Chinese firms that produce a range of materials and goods - from aluminium and chemicals to dyes and furniture - have said their production had been disrupted by power curbs.

These include Yunnan Aluminium a unit of China's state-run metals group Chinalco, which has cut its 2021 aluminium output target by more than 500,000 tonnes or almost 18per cent.

A Yunnan unit of Henan Shenhuo Coal & Power has also said it will miss its annual output target. That's despite the parent company having moved about half of its aluminium capacity to the southwest province to take advantage of abundant local hydropower resources.


Provincial authorities have stepped up enforcement of emissions curbs after only 10 of 30 mainland regions managed to achieve their energy goals in the first half of the year, while nine provinces and regions increased their energy consumption on an annual basis.

The eastern province of Jiangsu alone said this month it had begun inspections of 323 local companies with annual energy consumption of more than 50,000 tonnes of standard coal, as well as 29 other firms with high power needs.

Those and other checks served to limit energy usage across the country, bringing China's power generation down 2.7per cent in August from a month earlier to 738.35 billion kwh.

But that was still the second-highest month on record with overall power needs high amid a post-pandemic recovery in demand for goods globally as well as domestically on the back of stimulus measures.

The issue is, however, not limited to China as record high natural gas prices push energy-intensive companies in many parts of the world to curtail production.


In addition to power-intensive sectors like aluminium smelting, steel-making and fertiliser production, other industrial sectors have also been caught out by power cuts, triggering steep price jumps in a swath of raw materials.

Prices of ferrosilicon, an alloy used to harden steel and other metals, have shot up 50per cent in the past month.

Prices of silicomanganese and magnesium ingots have also soared, joining other key hard or industrial inputs like urea, aluminium and coking coal in scaling record or multi-year highs in recent weeks.

Food-related commodity producers have also been affected, with at least three soybean processing plants in Tianjin on China's east coast having shut recently, according to a soymeal purchaser in the area.

While the NDRC's plan to look into the power shortages is expected to alleviate some of the pain over the near term, market watchers do not anticipate an abrupt reversal in Beijing's stance on limiting emissions.

"Given the urgent need for decarbonatisation, or at least a sharp cut in the carbon intensity of the economy, stricter enforcement of environmental regulations will persist, if not intensify further," said Frederic Neumann, co-head of Asian Economic Research at HSBC.

(Reporting by Min Zhang, Tom Daly, Dominique Patton, Shivani Singh, Mai Nguyen and Brenda Goh; Writing by Gavin Maguire; Editing by Shivani Singh and Edwina Gibbs)

Source: Reuters


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