China heat wave: Sichuan closes factories to save electricity

Sichuan is a key manufacturing location for the semiconductor and solar panel industries, and the power rationing will hit factories belonging to some of the world’s largest electronics companies, including apple (AAPL) supplier Foxconn and Intel (INTC).

The province is also China’s hub for lithium mining – a key component in electric car batteries – and the shutdown could raise the cost of the raw material, analysts said.

China faces its own fiercest heat wave in six decades, with temperatures crossing 40 degrees Celsius (104 degrees Fahrenheit) in dozens of cities. The extreme heat has caused an increase in demand for air conditioning in offices and homes, putting pressure on the power grid. The drought is also depleted the water level in the rivers, which reduces the amount of electricity produced by hydroelectric plants.

Sichuan, one of China’s largest provinces with 84 million people, asked 19 of 21 cities in the region to halt production at all factories from Monday to Saturday, according to an “urgent notice” issued on Sunday by the provincial government and the state network.

The decision was taken to ensure that enough electricity is available for residential use, the notice states.

The southwestern province – which is also an important hydropower hub in China – has been gripped by extreme heat and drought since July. Since August 7, the heat wave in the province has intensified to “the most extreme level in six decades” and average rainfall has dropped by 51% from the same period last year, according to an article posted on the government’s website on Tuesday.
The province’s top officials warned on Monday that Sichuan is currently facing the “most serious and extreme moment” in power supply, according to the government-run Sichuan Daily.
Luzhou, a city in Sichuan, announced last week that it would turn off the city’s street lights at night to save electricity and ease pressure on the power grid.
People work at a semiconductor manufacturer in Suining in southwest China's Sichuan province, Tuesday, May 24, 2022. (FeatureChina via AP Images)
Sichuan is rich in mineral resources such as lithium and polysilicon – important raw materials in the solar cell and electronics industries. Many international semiconductor companies have factories in Sichuan, including Texas Instruments (TXN), Intel, Onsemi and Foxconn. The Chinese lithium battery giant CATL, which supplies batteries to Tesla (TSLA)also has a factory in the region.

Closing factories for the week could tighten supplies of polysilicon and lithium and push prices higher, Daiwa Capital analysts said in a note to clients.

Several Chinese companies have warned that their production could be affected by the power outage in Sichuan, including Sichuan Haowu Electromechanical, a maker of auto parts, and Sichuan Lutianhua, which produces fertilizers and chemical products.

Heat wave threatens power shortages and higher pork prices in China

Apart from Sichuan, other major Chinese provinces – including Jiangsu, Anhui and Zhejiang – have also urged businesses and households to conserve power as the heat wave has depleted electrical supplies.

In some regions, offices have been ordered to increase the AC temperature to above 26 degrees Celsius or turn off elevator services for the first three floors to save electricity.

Inflation risk

The extreme heat in China has also resulted in crop failures in many parts of the country, contributing to inflationary pressures last month.

“Impacted by the persistent high temperature in many places, the price of fresh vegetables rose 12.9% year-on-year, which was significantly higher than the same period last year,” Fu Linghui, a spokesperson for the National Bureau of Statistics, said at a Monday press conference in Beijing.

He pointed out that the extreme heat has caused drought in some agricultural areas in the south. In the north, rainfall and flooding also led to some crop failures.

“August and September are the key periods for the formation of autumn grain production. [We must] Pay close attention to the impact of natural disasters, insects and diseases on our country’s food production,” he added.

Source link

Back to top button