China's electricity crisis is now also disrupting international supply chains.
Some companies are still using stored goods.
But the bottlenecks are getting worse every day.
More and more companies are affected by China's electricity crisis.
Electricity prices are rising, and possibly coal prices too soon.
If the energy crisis continues, international supply chains could be disrupted - and the Christmas business.
This article is available to
IPPEN.MEDIA
as part of a cooperation with the
China.Table Professional Briefing
- it was first published by
China.Table
on October 20, 2021.
Beijing / Berlin - In China *, more than half of all provinces currently ration access to electricity.
The energy bottlenecks affect millions of people who sometimes sit in the dark for hours and cannot charge their cell phones.
In some cities, people got stuck in elevators and traffic lights went off.
The economy is also groaning from the electricity crisis.
In the industrial province of Guangdong * alone, almost 150,000 companies were affected by the energy crisis in September.
Companies complain that they learn of the shutdowns far too quickly.
Sometimes they only receive a message via app in the evening that the power will be switched off the next morning.
Due to the energy crisis, production regularly comes to a standstill.
More and more companies fear effects on their supply chains *.
And prices for the manufacturing industry could rise even more sharply in the future.
China's electricity crisis: supply chains increasingly affected - possibly soon also internationally
Ioana Kraft from the EU Chamber of Commerce in Shanghai China.Table reports that the “just-in-time” supply chains of some companies were interrupted by the energy crisis. There are also problems with delivering to our own customers. Due to the power cut, a French company was unable to produce enough industrial gases. The company had to restrict supplies to the chip industry, says Kraft. Some companies make do with diesel generators, but in certain areas that is hardly sufficient.
In addition, the authorities make no distinction between individual companies. Energy-efficient companies are just as affected by the power cuts as companies that pay less attention to sustainability. Some companies could still fall back on stored goods. For four to eight weeks this is a viable option, says Kraft. However, if the energy crisis persists, as many experts assume, it could become scarce afterwards. Then the electricity bottlenecks could also increasingly affect international supply chains, explains Kraft.
Klaus-Jürgen Gern from the Kiel Institute for the World Economy also fears that “there will be more production restrictions in the near future”.
This could also have an impact on the Christmas season.
Because production would normally be ramped up in the coming weeks.
It is likely that “the high demand from abroad cannot be fully met”.
The supply bottlenecks for the manufacturing industry in Europe could worsen.
China: Energy crisis leads to rising producer prices
The energy crisis is already having an impact on producer prices. Already in September the prices for energy raw materials and industrial products increased by more than ten percent. Since industries with high energy consumption are forced to limit their production again and again, the prices of raw materials threaten to rise even further. Stefan Gätzner, chief representative of the Federation of German Industries (BDI) in Beijing, fears "price increases or even supply bottlenecks for raw materials."
In addition, there is the liberalization of the electricity price in China.
The authorities recently decided that the prices for coal-fired electricity could rise by up to 20 percent above the state-set basic level.
Before the reform, the price of electricity was only allowed to increase by ten percent.
Coal power plants had cut their production because they could not work economically due to high coal prices.
The price reform is intended to counteract this.
This could also affect producer prices in the future.
And in the near future this could also lead to producers passing rising prices on to consumers if the costs of the energy crisis add up.
China: Authorities are considering state intervention in the price of coal as a raw material
But it is not just electricity prices that are rising. The price of coal has shot through the roof in the past few weeks. The forward price for the fuel on the Zhengzhou Commodities Exchange rose to almost 2,000 yuan (US $ 265) on Tuesday and hit a new high. After the market closed, however, the price collapsed by eight percent after the National Development and Reform Commission (NDRC) announced measures to lower the price.
China's legislation allows the government to intervene in the price of coal, according to the NDRC. "The current price hike has moved completely away from the fundamentals of supply and demand," said the NDRC. "The heating season is getting closer and the price is still showing another irrational upward trend." Since the end of September prices have risen by a third. At the beginning of the year it was less than 800 yuan. The high coal prices could also render the liberalization of the electricity price ineffective.
Lauri Myllyvirta, energy expert at the Center for Research on Energy and Clean Air, says: At a coal price of “1,500 yuan per ton, the fuel cost per kilowatt hour is 0.6 to 0.7 yuan, while the base price is 0.4 yuan each Unity lies ".
According to Myllyvirta, the broader price range that has been revised by the government is only a "modest candy" for power plant operators.
It remains to be seen whether there will be further increases in electricity prices soon.
China: More coal electricity despite climate commitments - coal mining is increasing again
According to reports from the
Reuters
news
agency
, coal production in China is slowly increasing.
In September, an average of 11.14 million tons per day were extracted.
According to the authorities, on October 18 it should have been 11.6 million tons.
The National Development and Reform Commission NDRC announced that it would further increase coal production *.
For this purpose, 153 disused coal mines are to be reactivated.
The aim is to produce at least twelve million tons of coal per day, according to the NDRC.
China's electricity crisis: provinces react differently - cold winter looms
The provinces react very differently to the energy crisis. In Jiangsu * there will soon be more electricity again. Local authorities in the northeast around the city of Shenyang have also assured that the situation will ease in November. In Guangdong, however, the administration announced that rationing could continue. Klaus Zenkel from the EU Chamber of Commerce tells China.Table that the provincial government in Guangdong is providing additional capacity for electricity generation using diesel generators. However, the resident companies still have concerns about customers dropping out. It is also unclear what effect delivery delays will have.
The situation could be exacerbated by the weather.
A La Niña event could happen in the next few months, according to researchers from the United States Department of Weather and Oceanography.
This weather phenomenon causes winter temperatures to drop in the northern hemisphere.
In the past ten days, the temperatures in many regions of central and eastern China were below the usual temperatures for this time of the year.
Chinese banks are assuming that coal and gas prices will continue to rise.
Many analysts therefore agree: the energy crisis will last into winter.
And one thing is clear: the longer the crisis lasts, the greater the consequences for international supply chains and the networked global economy.
From Nico Beckert
Nico Beckert
has been editor for the
Table.Media Professional Briefings
since January 2021
.
His main topics are German-Chinese relations, economics and finance, the New Silk Road and Chinese climate policy.
Beckert previously wrote as a freelance author for
Tagesspiegel
and
Friday.
This article appeared on October 20, 2021 in the China.Table Professional Briefing newsletter - as part of a cooperation, it is now also available to readers of the IPPEN.MEDIA portals. * Merkur.de is an offer from IPPEN.MEDIA. * Merkur.de is an offer from IPPEN.MEDIA.
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