China’s Energy Crisis Threatens Global Supply Chain

Widespread power shortages have caused China’s economy to hit its lowest point of growth in the third quarter of this year. Shortages of coal, skyrocketing electricity prices, and increased demand for industrial goods have caused the Chinese government to ration electricity use in at least 17 of 30 of mainland China’s regions. There are a few main reasons why China is experiencing an energy shortage:

• Electricity prices paid to power generators are regulated by the central Chinese government in an attempt to curb inflation. However, when coal prices rise, industrial plants operate at a loss, so the factories temporarily shut down, citing reasons of technical malfunction or failure to purchase coal. 
• China is under heavy diplomatic pressure to meet CO2 emissions reduction goals under the Paris climate agreement and regulates power usage nationwide. 
• Natural disasters have halted coal production, such as torrential rainstorms that suspended coal mine factories in Shanxi for a week. 
• China’s dependence on coal, which provides 70% of the nation’s power, is leading to an over-reliance on coal and Chinese coal producers are struggling to match the demand.

Supply Chains at Risk and Impacted Industries 

These power shortages are disrupting global supply chains and are leading to a worldwide shortage of goods produced in China. China’s GDP is projected to be down by 2% in December, and energy-dependent sectors such as steel, aluminum, and cement producers are some of the most at-risk, according to Standards & Poor’s estimates. 

According to Natixis’ market risk reports, the power restrictions will have severe implications on the manufacturing sector, and producer prices will be expected to go up, squeezing the profit margin of downstream users and leading to inflation risk. 

Steps to Alleviate the Impact of China’s Energy Crisis

Shanxi, China’s biggest coal-producing region, ordered its mines to raise annual output capacity by 55.3 million tons over the remainder of 2021. Furthermore, they are allowing mines that already hit annual production levels to go over their limits. Inner Mongolia, China’s #2 producer of coal, also received urgent notice from the region’s energy department to operate at higher capacities. While these ease coal shortages in the time being, they don’t completely alleviate current energy needs. 

Now, more than ever, companies are looking towards supply chain managers and risk forecasting tools to help stay on target with production. SiliconExpert’s Supply Chain Risk Management tool tracks industry-impacting news, analyzes the parts and components that are at-risk, and assigns a risk grade accordingly. If a component is at risk, especially when sourced at a factory hit by China’s power regulations, it’s important to find alternatives from our extensive database of factories and part inventories. 

Learn More About SiliconExpert’s Supply Chain Risk Management Tool

Don’t risk delaying your product delivery by months and up to a year, due to global supply chain issues. Gain access to industry-affecting news alerts, analyze the risk scores given to the parts that you source, and alternatives to getting components on time.