Heat wave in China: Sichuan closes factories to save energy

Sichuan is a key manufacturing location for the semiconductor and solar panel industries and power rationing will hit factories owned by some of the world’s largest electronics companies, including Apple (AAPL) Foxconn supplier and Intel (INTC).

The province is also China’s mining hub for lithium – a key component of electric car batteries – and the shutdown could drive up the cost of the raw material, analysts said.

China faces its fiercest heat wave in six decades, with temperatures exceeding 40 degrees Celsius (104 degrees Fahrenheit) in dozens of cities. The extreme heat has caused an increase in demand for air conditioning in offices and homes, putting pressure on the power grid. The drought has also depleted river water levels, reducing the amount of electricity produced in hydroelectric plants.

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

The decision was made to ensure enough power is available for residential use, the notice said.

The southwestern province – which is also a key hydroelectric center in China – has been plagued by extreme heat and drought since July. Since August 7, the heat wave in the province has intensified to “the most extreme level in six decades”, and average rainfall has fallen by 51% compared to the same period in previous years, according to a article published Tuesday on the government’s website.
Senior provincial officials warned Monday that Sichuan is currently facing the “most serious and extreme moment” in electricity supply, according to the state-run newspaper Sichuan Daily.
Luzhou, a city in Sichuan, announced last week that it would turn off city streetlights at night to save energy and ease pressure on the power grid.
Sichuan is rich in mineral resources such as lithium and polysilicon, essential raw materials for the solar photovoltaic and electronics industry. 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 You’re here (TSLA)also has a factory in the area.

Closing factories for the week could tighten polysilicon and lithium supply and push up prices, Daiwa Capital analysts said in a note to clients.

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

Heat wave threatens power shortages and rising pork prices in China

Besides Sichuan, other major Chinese provinces – including Jiangsu, Anhui and Zhejiang – have also urged businesses and households to save energy as the heatwave has depleted electricity reserves.

In some areas, offices have been ordered to raise their AC temperature above 26 degrees Celsius or shut down elevator services for the first three floors, to save electricity.

Inflation risk

Extreme heat in China has also resulted in poor harvests in many parts of the country, adding to inflationary pressures. last month.

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

He pointed out that the extreme heat has caused droughts in some agricultural areas in the south. In the north, rains and floods have also led to poor harvests.

“August and September are the key periods for the formation of autumn cereal production. [We must] pay particular attention to the impact of natural disasters, insects and diseases on our country’s food production,” he added.

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