China’s Energy Crisis And Global Supply Chains

As China’s power crisis becomes widespread and continues to slow Chinese producers, the situation there is fast becoming a major threat to global supply chains and markets. With over half of China’s provinces now conserving energy usage, factories are limiting production at a critical time. The holiday shopping season is approaching. Producers and shippers are frantically racing to meet demand for consumer products ranging from electronics to clothes. There has already been a steady stream of supply line-related disruptions recently, resulting in everything from shipping container shortages to significant delays at ports around the world. The energy issues in China threaten to add even more chaos and uncertainty to supply chains in coming months.

The extent of China’s current energy issues remains unknown, yet outside experts believe the problem is long term. One of the prime causes of this situation is a coal shortage. Stockpiles across the PRC are approaching critically low levels. China is the world’s largest consumer of coal, a nation that runs on the dirtiest of fossil fuels. On Monday, the China Electricity Council said in a statement that it will increase the purchase of coal from suppliers at “any price to ensure heating and power generation in winter.” This is a far cry from not very long ago when high coal prices kept Chinese buyers on the sidelines. The consensus at the time was that the existing inventories of coal would be sufficient to weather the storm. Things are different now and China is adjusting to meet the new realities.

Of course, China’s power crisis is not the only worry for global supply chains. The fuel shortage in Great Britain is spiraling out of control and there’s growing concern the effects of it could spread swiftly. We’ll discuss that tomorrow evening.  

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