China Power Woes Hit Chem Output

By Malini Hariharan and John Richardson

The power crisis in China, highlighted in this post last month and yesterday, has worsened and is likely to affect economic output in the second quarter.

More than 10 provinces, including Zhejiang, Hunan, Anhui, Jiangsu, Hubei, Sichuan and Henan, have been affected.

Small and medium-sized petrochemical producers in the affected regions have had to cut operating rates or shut down operations because of the power restrictions, reports the blog’s colleague Judith Wang on ICIS news.

“Downstream plastic plants in Ningbo were ordered to shut down for one day a week from March,” said a Chinese polypropylene (PP) trader.

In Zhejiang province, some polyvinyl chloride (PVC) facilities have had to reduce their operating rates by 10-20% from March.

“It looks like the power shortage will be [of] unprecedented intensity this year,” an industry source said.

The shortage has been attributed to a a drop in coal supplies that has affected output at the country’s many thermal power plants. Additionally, a drought in the south has curtailed hydro-electric output.

The China Electricity Council has estimated around 30 gigawatts of power shortfall in summer, about 3 percent of China’s generating capacity

Experts point out that this year’s power crisis is different from the ones that China has experienced in the past. The country has enough capacity but many power plants are not running at full rates as power prices are fixed while coal prices are rising.

To sort out the problem power costs will have to go up, but this will only fuel inflation which the Chinese government is struggling to control.

Some polyester producers have turned to diesel generators but the availability of diesel is becoming an issue, as again we discussed yesterday. The situation could improve in the coming months as the government has suspended diesel exports indefinitely to meet domestic demand.

Yesterday’s post also talked about how refiners, under pressure from rising crude prices, had reportedly cut back on production of both gasoline and diesel. Gasoline and diesel price rises – as with coal – are limited by government pricing policy, making it impossible for the refiners to fully pass-on increases in oil prices.

Sinopec been ordered to cut back on ethylene output – by 4% in April and 10% in May – in order to divert more naphtha to gasoline production and gasoil for making more diesel.

It will be interesting to see whether the measures taken so far will be sufficient to meet transportation-fuel demand and provide sufficient diesel for electricity generators.

Further ethylene production cuts by Sinopec to meet fuel requirements might help support weak polyolefins markets.

The power shortages we just detailed come, however, at the worst possible time for petrochemicals demand as China’s peak manufacturing season for finished goods is about to begin.

Failure to fully solve the extensive power problems will therefore be another reason – along with all the inflation-tackling measures and the harm done to the economy by inflation – to expect lower petchem exports to China.






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