Whether its LNG, dry bulk, containers, car carriers, tankers or shipbuilders, the extreme power shortages being experienced in China at the moment are affecting almost every strand of shipping.
Two thirds of China’s provinces have been forced to implement electricity-rationing measures for the past fortnight as the nation faces up to a severe coal shortage. Factory closures are expected to have sizeable impacts on the volumes of container exports in the coming months.
Official data released this week showed China’s factory activity contracted in September for the first time since February 2020 when China first contended with the spread of Covid-19.
Since last week, more than 100 companies from electronic component manufacturers to gold miners have notified stock markets of production suspensions.
This is the worst global energy crisis in a decade
One of the worst affected provinces is Jiangsu, where the major cities of Kunshan and Suzhou are home to key clusters in the electronics, chipmaking and textile industries
The China Coal Industry Association warned this week it was “not optimistic” about supplies ahead of winter, the peak season for demand.
The government has said its priority will be to guarantee household power and heating supplies over the winter, as state-run energy firm Sinopec pledged to boost imports of liquefied natural gas.
However, Citi analysts said in a note they expected power shortages to persist in the peak winter season for heating, most of it coal-fired.
Shipbuilding sources in China have told Splash this week that the power shortages are likely to hamper delivery schedules in the coming months.
Commodore Research stated in a recent note that China’s reliance on thermal coal has continued to grow. So far this year, thermal coal-derived electricity generation has contributed to 72.1% of China’s total electricity generation. During the same period last year, it contributed 71.3% of total electricity generation.
The extreme demand for coal, combined with strong iron ore imports, have pushed dry bulk rates – particularly for capesizes – back to the territory they enjoyed in their glory days of 2007 and 2008, aided by big port congestion.
Cape queues in China today are 117% higher than the five-year average, according to Braemar ACM.
China put a ban on Australian coal last year, which pushed up the ton-mile scenario for dry bulk a great deal, as the world’s most populous nation sought coal from all the corners of the planet to replace its Australian source. There is now speculation that as panic sets in in Beijing, the Chinese government might have to make a policy U-turn on its Australian ban.
Other Australian commodities have seen a resurgence in the People’s Republic of late. China is snapping up cargoes of Australian wheat despite a bitter trade standoff between the two countries, as crop downgrades elsewhere lead to a global shortfall in output. The buying spree comes as Australia, a key global food supplier, is expecting a second consecutive bumper harvest, while Northern Hemisphere producers have been hit by adverse weather and drought.
It’s not just China that experiencing an energy crisis. In the US, the Hurricane Ida dealt a blow to oil and gas production in the Gulf Coast, while in Europe, shortages of natural gas have led to soaring costs.
Analysts at Lorentzen & Stemoco have identified five factors all at work, causing what the Norwegian broker described today as the worst global energy crisis in a decade.
“First, demand is rebounding solidly after Covid-19, as requirements from industry and consumers are returning to pre-pandemic levels,” analysts at Lorentzen & Stemoco noted in an update to clients today. “Second, investment in the energy sector has been underfunded for years, both by corporations and states. Third, the shift towards more renewable energy types such as wind and solar has left a vacuum exacerbating the deficit. Four, climate change is causing supply destruction and extreme changes in demand. And finally, political relations have been altered between the haves and have-nots.”