Heat wave in China: Sichuan closes factories to save energy

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

Analysts believe the province is also China’s center of lithium production – a key component in electric vehicle batteries – and the shutdown could drive up the cost of raw materials.

China is facing its the strongest heatwave in six decadeswith temperatures exceeding 40 degrees Celsius (104 degrees Fahrenheit) in dozens of cities. The extreme heat has caused a surge in demand for air conditioning in offices and homes, putting pressure on the power grid. The drought also exhausted water levels in rivers, which reduces the amount of electricity generated by hydroelectric power plants.

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

The decision was made to provide enough power for domestic use, the notice said.

The southwestern province, which is also a key hydropower hub in China, has been suffering from extreme heat and drought since July. Since Aug. 7, the province’s heatwave has intensified to “the most extreme levels in six decades,” with average rainfall down 51% from the same period in previous years, according to the article. posted on government website on Tuesday.
On Monday, senior provincial officials warned that Sichuan is currently experiencing “the most serious and extreme moment” in its electricity supply, according to a government agency. Sichuan daily.
Luzhou, a city in Sichuan province, announced last week that he would turn off the city’s street lights at night in order to conserve electricity and reduce the load on the power grid.
Sichuan is rich in minerals such as lithium and polysilicon, key raw materials for 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 Tesla (TSLA)also has a factory in the region.

Closing factories for a week could cut polysilicon and lithium supplies and drive up prices, analysts at Daiwa Capital said in a note to clients.

Several Chinese companies have warned that their production could be affected by the power outage in Sichuan, including Sichuan Haowu Electromechanical, an auto parts maker, and Sichuan Lutianhua, a fertilizer and chemical products maker.

Heatwave threatens power shortages and rising pork prices in China

In addition to Sichuan, other major Chinese provinces including Jiangsu, Anhui and Zhejiang have also urged businesses and households to conserve electricity as heatwaves have depleted electricity supplies.

In some regions, offices have been ordered to raise the temperature of the air conditioner above 26 degrees Celsius. or turn off the elevators on the first three floors to save energy.

inflation risk

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

“Due to persistent high temperatures in many places, the price of fresh vegetables rose 12.9% year on year, significantly higher than the same period in previous years,” National Bureau of Statistics spokesman Fu Linghui said. This is stated on Monday at a press conference in Beijing.

He noted that extreme heat has caused drought in some agricultural areas in the south. In the north, rains and floods have also led to some crop failures.

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

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