Iron ore price reverses to losses as weakening China steel consumption drags
Apparent consumption of five major steel products slipped by 2.1% week-on-week.
Toyota Motor Corp. and Contemporary Amperex Technology Co., the world’s top battery maker, are closing plants in China’s Sichuan province as a drought-induced power crisis worsens.
The Japanese automaker shut a factory in the provincial capital of Chengdu and will keep operations suspended until Aug. 20, a company spokesperson said. Contemporary Amperex halted activity at its major lithium battery base in Yibin through the same date, a local business publication reported.
Sichuan, one of China’s most populous provinces, is highly reliant on hydropower. That makes it particularly vulnerable to a heat wave and drought that’s pushing up air-conditioning demand and drying up reservoirs behind hydro dams. It’s a key manufacturing hub and is also important for the production of materials including polysilicon and lithium that are vital to the energy transition.
The southwestern province has become a key development hub for battery makers aiming to harness hydropower to reduce emissions in their production processes. CATL has about 100 gigawatts of existing and planned capacity in the province, the most after Fujian, according to BloombergNEF.
The factory shutdowns add to a growing number in industries from solar panels to aluminum smelting. Volkswagen AG said on Monday that its factory in Chengdu is affected by power shortages, but that it was only expecting slight delays in deliveries to customers. Foxconn Technology Co. also makes Apple iPads in the province, but said it was seeing only limited impact from the drought so far.
The local government instructed factories to suspend activities through Aug. 20, said Shiori Hashimoto, a spokeswoman for Toyota. The Chengdu plant produces about 30,000 vehicles a year, including the Landcruiser Prado, according to the manufacturer’s website.
CATL didn’t immediately respond to an emailed request for comment.
While other regions in China are dealing with curtailments on a smaller scale, a major power crisis is likely to be mostly limited to Sichuan because of its unique reliance on dams for electricity. Still, that leaves a region with a similar population to Germany and an economy bigger than Turkey facing curtailments on a wide array of factories for almost a week.
Many Chinese provinces rely more on coal for power, and generators stocked up on the fuel in the run-up to summer as virus lockdowns weighed on demand. The heat wave has reversed that, with coal consumption for the first two weeks of August rising 15% from a year earlier, the government’s top planning agency said Tuesday.
Floods in the northern Shanxi province, the biggest coal producer, are also leading to mine closures that could impact the wider electricity market if they persist.
Temperatures in Chengdu were as high as 38 degrees Celsius (100 degrees Fahrenheit) on Wednesday after soaring above 40 in parts of Sichuan on Tuesday, with humidity making it feel hotter. Some office buildings in the city have stopped air conditioning as the power shortage becomes more severe, Securities Times reported.
In Dazhou, another major city in Sichuan, residents may have their power use limited for two and a half hours if pressure on electricity use can’t be alleviated, Dazhou Electric Power said in a statement on its WeChat account.
Sichuan is a major rice and corn producer, and the National Meteorological Center warned this week the drought could damage crops and hinder growth. Some fertilizer companies in the province have also been forced to stop production, adding to disruptions in the global supply of crop nutrients crucial for maintaining the world’s food supply.
The heat wave isn’t limited to just Sichuan, and is affecting the wider Yangtze River basin. There’s only light-to-moderate rain expected in the next week and the Three Gorges Dam, the world’s largest, in neighboring Hubei province, will release more water in the next five days to help replenish the middle and lower reaches of China’s largest waterway, state-run Xinhua News reported.
Sichuan accounts for nearly 15% of Chinese polysilicon output, and the price of the key ingredient in solar panels rose on Wednesday, according to China Silicon Industry Association. The price of lithium, used in electric vehicle batteries, is also likely to get a boost from the drought, said Susan Zou, an analyst at Rystad Energy.
The power cuts have affected more than 70% of steel mills in Sichuan, which have either halted production or started rationing, Mysteel said in a note this week. Henan Zhongfu Industry Co., an aluminum smelter, is halting production for a week for some production units in Sichuan. The Chinese price of aluminum is up around 3.5% since Monday’s close.
(With assistance from Tsuyoshi Inajima, Luz Ding and Hallie Gu)
Read More: Iron ore price tumbles as China power shortages hit steel mills
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