MRF Logistics: Power Outages Hit China, Threatening the Economy and Christmas

MRF Logistics, agent in Hong Kong, goes on to say:

Power cuts and even blackouts have slowed or closed factories across China in recent days, adding a new threat to the country’s slowing economy and potentially further snarling global supply chains ahead of the busy Christmas shopping season in the West. The outages have rippled across most of eastern China, like Guangdong (Shenzhen, Guangzhou, Donguan), Anhui, Zhejiang (Ningbo), Shandong (Qingdao). As you see, they are all provinces with better economic development in China.

There are several reasons electricity is suddenly in short supply in much of China. More regions of the world are reopening after pandemic-induced lockdowns, greatly increasing demand for China’s electricity-hungry export factories.

As electricity demand has risen, it has also pushed up the price of coal to generate that electricity. But Chinese regulators have not let utilities raise rates enough to cover the rising cost of coal. So the utilities have been slow to operate their power plants for more hours. Experts in China predicted that officials would compensate by steering electricity away from energy-intensive heavy industries like steel, cement and aluminum, and said that might fix the problem.

The electricity shortage is starting to make supply chain problems worse. The sudden restart of the world economy has led to shortages of key components like computer chips and has helped provoke a mix-up in global shipping lines, putting in the wrong places too many containers and the ships that carry them. Power supplies are little different. Compared with last year, electricity demand is growing this year in China at nearly twice its usual annual pace. Swelling orders for the smartphones, appliances, exercise equipment and other manufactured goods that China’s factories churn out has driven the rise.

But the bulk of China’s power problems are unique to the country. Two-thirds of China’s electricity comes from burning coal, which Beijing is trying to curb to address climate change. Coal prices have surged along with demand. But because the government keeps electricity prices low, particularly in residential areas, usage by homes and businesses has climbed regardless.

Faced with losing more money with each additional ton of coal they burn, some power plants have closed for maintenance in recent weeks, saying that this was needed for safety reasons. Many other power plants have been operating below full capacity, and have been leery of increasing generation when that would mean losing more money, said Lin Boqiang, dean of the China Institute for Energy Policy Studies at Xiamen University.

China’s main economic planning agency, the National Development and Reform Commission, also ordered 20 large cities and provinces in late August to reduce energy consumption for the rest of the year. The regulators cited a need to make sure that the cities and provinces met full-year targets set by Beijing for their carbon dioxide emissions from the burning of fossil fuels.

Many factories have purchased generators to remain at normal production. We forecast this problem is not a good sign for ocean fees. If no adequate cargo is waiting for export, then the carrier has no reason to increase/remain at the current rate level.

Any further information received we will share accordingly.

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