Severe power shortage hits south China; dents petrochemical demand
SINGAPORE (ICIS)–Manufacturing industries in southern China are grappling with a severe power shortage, forcing some plants in Guangdong province to shut production for up to four days a week, denting demand for petrochemicals in the region.
Guangdong’s local government has imposed restrictions on industrial power consumption since mid-May, at the onset of summer, to prioritize household requirements.
The province is an industrial hub in southern China, producing various products from toys, textiles to cars – all major downstream industries of petrochemicals.
Consumption of key polymers and resins such as polyethylene (PE), polypropylene (PP), polyvinyl chloride (PVC) and acrylonitrile-butadiene-styrene (ABS) has been hit, industry sources said.
Demand weakness is further complicated by a resurgence of COVID-19 infections in the capital of Guangzhou in late May, creating some logistics problems for cargoes going in and out of Guangdong.
Lockdowns are in place in some of the province’s communities and mass COVID-19 tests are being conducted.
Construction is among the industries feeling the brunt of the power shortages in the region, said a Guangdong-based trader.
Toy production was likewise severely affected, while the hit on electronics and sportswear manufacturing was relatively milder, the trader said.
“Our power-off day has been increased to four each week since 1 June from two in the last week and one half-month ago,” said an official at a Guangzhou-based sportswear producer, citing that this year’s power shortage is more acute compared with the previous years’.
The factory, which has around 2,000 staff, makes products for big sports brands such as Nike, Adidas and New Balance.
“We can’t afford the [production] loss [and need to] compensate customers for late delivery and have to rent a power generator to self-supply electricity,” the factory official said.
Local governments are currently offering subsidies to encourage companies to generate energy for their own requirements, she added.
This year’s severe power shortage may have been brought about by a confluence of factors, including increased export orders since the second half of 2020, which have kept Chinese factories working double time; and excessive engagement in energy-hungry cryptocurrency mining which prompted a recent government crackdown; while the country’s energy supply is being limited by recent spikes in coal prices.
China, the world’s second-biggest economy, relies on coal-fired power plants for the bulk of its energy needs. At current coal prices, however, the power plants attempt to stem losses by either cutting production or shutting down their facilities.
Petrochemical production of industry giants such as Sinopec and PetroChina in the southern region, however, was largely unscathed.
Big companies’ plants are usually equipped with power generators, ensuring no operational disruption stemming from electricity shortage.
Much smaller producers are being forced to cut output.
Small PP makers in Guangdong are looking at cutting production by about 30% for an uncertain duration, market sources said.
For PE, PP and ABS, market inventories are rising as end-users are not operating normally, said a plastic trader, whose customers are mostly based in Guangdong’s Pearl River delta, a key manufacturing hub in China.
“Our ABS orders have dropped to 100 tonnes for June delivery from a normal volume of 500-600 tonnes a month,” he said.
Guangdong is located in the southernmost part of China, where temperature is higher and the hot weather can last up to September.
Focus article by Fanny Zhang
Additional reporting by Yvonne Shi
Photo: The Datang International Zhangjiakou Power Plant at dusk in Zhangjiakou City, Hebei, China – 07 February 2021. (Source: Sipa Asia/Shutterstock)