For unprecedented reasons, many Chinese manufacturing companies are currently being forced to drastically reduce their output – but why? There isn’t enough electricity!

How delivery times from the Far East will increase dramatically.

Now this too! In addition to a shortage of raw materials, this entirely new situation is causing prices to rise and delivery times to increase incalculably. Prices are already high and delivery times of over 24 weeks are already practically the rule, but now, we must assume that prices will rise by at least 7-10% and delivery times will be well over 30-36 weeks.

And, there’s no improvement in sight. All experts assume that the entire year 2022 will remain difficult. Until supply chains have “normalized” again, the situation must first be brought to an end, and then it will take many more months until global trade is once more sailing in calm, reliable and normal waters.

The current situation:

As there is currently a real shortage of coal in Chinese power plants and therefore not enough electricity is being generated, there have been targeted shutdowns and efforts to cut down on electricity consumption in large parts of the country. Many industrial companies are only informed one to three days in advance when and for how long their power will be cut off. For example, work is only started every two days. As a result, delivery times for all industrial products and semi-finished products will increase dramatically.

The effects of this lack are noticeable, even in private life. Air conditioners are no longer turned on, people are taking the stairs instead of the elevator, traffic lights are out of order and shopping centers are closing much earlier.

But what are the reasons for this power shortage?

First of all (though probably to a lesser extent), the government in Beijing wants to significantly reduce emissions in order to achieve climate neutrality by 2060. As many districts have already far exceeded their targets, the pressure on local governments is increasing, and they have been forced to act.

Secondly, and more seriously, there is a shortage of coal for generating electricity. Since 60% of all electricity generated comes from coal, and this is a major problem at the moment. Due to the rise in prices for commodities, power plants are generating electricity at a loss in some cases.
The trade dispute with Australia (Canberra), which mainly concerns coal, is also exacerbating the situation. The Chinese government has ordered imports from Canberra to be stopped.
The coal region in Mongolia is also producing even less coal these days as new anti-corruption laws are also causing a drop in production there. Between 2019 and 2020, coal output fell by 14 million tons.
In addition, winter has arrived earlier than expected in the northeast of the country, further increasing the demand for heating energy.

We therefore recommend checking the supply chains, especially from the Far East, as early as possible and being prepared for even longer delivery times.

Our suppliers and partners have also been severely affected by this situation and can no longer meet expected delivery dates. Less and less can be planned, and some offers are now being submitted without specifying delivery times.

Prices will continue to rise, current surcharges of 5-7% for higher energy costs are increasingly normal and more surcharges are expected to be added.

No one knows how long this situation will last, and the effects on global trade are currently pure speculation. All product areas will be affected, including our fasteners.

Please contact us if we can help you with procurement.

Sources:
https://taz.de/Stromausfall-in-China/!5800371/
https://www.tagesschau.de/wirtschaft/weltwirtschaft/china-stromausfaelle-101.html
https://de.statista.com/statistik/daten/studie/588032/umfrage/kohlefoerderung-in-der-mongolei/