Chinese firms warn of hit to bottom line as provinces introduce power cuts to meet energy consumption targets
- Over 10 companies across several provinces said in exchange filings that the power shortages could affect production and consequently their profitability
- Power cuts have been introduced because of a surge in electricity consumption, tightening coal supplies, as well as pressure on local governments to meet energy consumption targets before the year-end
The companies’ warnings came amid a new wave of power rationing that started in at least 10 Chinese provinces, including the manufacturing hubs of Guangdong, Anhui, Zhejiang and Jiangsu over the past days, forcing factories to limit power usage or pause production.
As of Friday, over 10 companies, including those in Yunnan province and Guangxi autonomous region, said in exchange filings that the power rationing could cause production to stop and consequently affect their bottom line.
“The suspension and reduction of production will have a significant adverse impact on order fulfilment and product sales,” Jiangsu ChengXing Phosph-Chemical said in an exchange filing on Thursday. This, the company said, will have a significant adverse impact on its annual operating results.
The yellow phosphorus manufacturer was forced to stop production at its four main facilities in Yunnan, Jiangsu and Guangxi, which accounted for nearly all of its operating income and net profit, the company said. Its share price fell 5.1 per cent to 7.13 yuan on Friday.
Shares of Jiangsu-based fine chemicals manufacturer Yangzhou Chenhua New Material plunged 18.2 per cent to 17.22 yuan since Wednesday, after its wholly-owned subsidiary Huai’an Chenhua was forced to halt production.
Shares of Yunnan Aluminium have fallen nearly 13.3 per cent to 17.53 yuan since September 17, when it lowered its expected aluminium production for 2021 to 2.36 million tonnes, 18 per cent lower than the 2.87 million tonnes estimated in its annual report in March.
The power cuts were driven by the surge in electricity consumption, China’s tightening coal supplies, as well as the local governments’ pressure to meet energy consumption targets before the year-end, according to Lin Boqiang, dean of the Xiamen University’s China Institute for Studies in Energy Policy.
Energy-intensive firms in Guangdong were ordered to pause output to curb electricity usage for a week, Guangdong Power Grid said. In Zhejiang province, at least 160 energy-intensive companies mainly in the textile, dyeing and chemical fibre industries have been affected, Chinese media Caixin reported.
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One graphite plant in Nantong, Jiangsu province, which has over 100 full-time workers, had to either temporarily move its over 60 workers from the production line to other units, or let them take a week off. Its manager estimated that the loss from the week’s production halt could mount to between 10 million yuan (US$1.54 million) and 20 million yuan, around 10 to 20 per cent of the factory’s annual revenue.
“The first reason for [the power rationing] is the increased electricity demand. Another reason could have something to do with the dual-control plan,” said Lin. “Because it’s approaching the year-end, local governments may want to meet the dual-control targets as it’s been a recent focus of the central government.”
The power cuts come after the National Development and Reform Commission, China’s top economic planner, last week released a “dual-control” plan targeting to enhance control on both energy intensive activities and total energy consumption.
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The so-called “dual control plan” puts emphasis on “resolutely controlling high energy consumption and high emission projects”, and ordered regional governments to set targets to cap and ration electricity consumption to control emissions.
Based on the power rationing policies issued by the regional governments so far, the power cuts are mainly focused on six energy-intensive industries, including yellow phosphorus, aluminium, industrial silicon and building materials, Song Xuetao, a TF Securities analyst, said in a report on Thursday.
“Localities and enterprises can use renewable energy power to bypass the assessment of total energy consumption, in exchange for more room for industrial development. This is expected to accelerate the adjustment in the country’s energy structure,” Song said.
