China heat wave: Sichuan closes factories to save energy

Sichuan is a major manufacturing site for the semiconductor and solar panel industries, and 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 mines — a key component of electric car batteries — and the shutdown could drive up the cost of the raw material, analysts said.

China is facing its worst heat wave in six decades, with temperatures exceeding 40 degrees Celsius (104 degrees Fahrenheit) in dozens of cities. The extreme heat has led to a spike in demand for air conditioning in offices and homes, putting pressure on the electricity grid. The drought has also abated river water levels, reducing the amount of electricity produced by hydroelectric plants.

Sichuan, one of China’s largest provinces with a population of 84 million, has told 19 of the region’s 21 cities to suspend production at all factories from Monday to Saturday, according to an “urgent message” issued Sunday by the provincial government and the state network .

The decision was made to ensure that sufficient power is available for domestic use, the statement said.

The southwestern province – which is also a major hydropower center in China – has been gripped by extreme heat and drought since July. Since Aug. 7, the province’s heat wave has intensified to “the most extreme level in six decades,” and average rainfall has fallen 51% from the same period in previous years, according to an article published Tuesday on the government’s website. is placed.
The province’s top officials warned on Monday that Sichuan is currently facing the “most serious and extreme moment” in its 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 streetlights at night to save power and relieve pressure on the power grid.
People work at a semiconductor manufacturer in Suining, 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 photovoltaic and electronics industries. Many international semiconductor companies have factories in Sichuan, including: Texas Instruments (TXN)Intel, Onsemi and Foxconn. Chinese lithium battery giant CATL, which supplies batteries to Tesla (TSLA)also has a factory in the region.

Closing plants for a week could shrink polysilicon and lithium supplies and push prices up, Daiwa Capital analysts said in a note to customers.

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

Heat wave threatens power shortages and higher pork prices in China

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

In some regions, offices have been instructed to raise their AC temperature above 26 degrees Celsius or stop the elevator services for the first three floors to save electricity.

Inflation risk

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

“Affected by the persistently high temperatures in many places, the price of fresh vegetables increased by 12.9% year-on-year, which was significantly higher than the same period in previous years,” said Fu Linghui, a spokesman for the National Bureau of Agriculture. Statistics. , said Monday at a press conference in Beijing.

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

“August and September are the most important 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.

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