China Power Crunch Sparks Turbulence in Commodities Markets


(Bloomberg) – China’s energy-hungry commodity producers are in Beijing’s sights, but the government’s efforts to avert a widespread energy crisis are also fueling rallies in everything from silicon fertilizers.

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Production of metals ranging from aluminum to steel has been collapsing for months as power cuts intensified in major industrial provinces. Now factories producing high-end products are also starting to feel the effects, creating increasing risks to the country’s economic growth. Worse still, the energy crisis is spreading to a sector that worries Beijing the most: food.

From soy to nickel, here’s how China’s efforts to avert an energy crisis are shaking up industrial commodity markets.

Food safety

Ensuring that China’s 1.4 billion people have enough to eat is a top national priority, yet the power shortage has forced soy processors in northern regions to shut down and drive up fertilizer prices. .

Certain soy factories operated by Louis Dreyfus Co., Bunge Ltd. and the Yihai Kerry unit of Wilmar International Ltd. are among those affected. So far, the impact has been cushioned by weak demand for soybean meal – used in animal feed – due to falling pork prices. However, if factories remain shut down, it could delay soybean purchases by the biggest buyer and dampen US exports.

There are also concerns that China’s policy measures could reduce the exploitation rates of corn processors that make products like starch and syrup, Chinese brokerage firm Huatai Futures Co. said in a note.

Given the importance of fertilizers to overall food security, the price rally has attracted increasing attention from Beijing. This week, a Chinese state-owned company said it was fined for raising the prices of fertilizer products, following warnings earlier this year against hoarding and rising prices.

Impact of metals

The electricity crisis in the world’s leading base metal consumer has triggered production losses at smelters and manufacturers in recent months, affecting both supply and demand for everything from copper to l ‘tin. So far, the biggest impact has been felt in energy-intensive aluminum factories.

That stifled the supply of aluminum – just under 3 million tonnes of annual smelting capacity, according to Goldman Sachs Group Inc. – fueling the metal’s rally to the highest level since 2008 earlier this month. Although this already represents around 8% of China’s total capacity, the prospect of further rationing of electricity as the country braces for higher winter demand will keep the sector under pressure.

Steel suspension

Steel plants, the main targets of China’s emissions reduction campaign, have also been hit by power cuts. This has led to a mad race for iron ore – the main raw material for steelmaking – in recent months, with prices falling by half from the May high. More than 80 national steel mills suspended production for maintenance in September, according to researcher Mysteel.

Nickel hit its highest level since 2014 earlier this month, but concerns over China’s electricity crisis have clouded the outlook for stainless steel consumption. In Fujian province, the main hub for stainless steel production in China, some factories have started to halt production, with national monthly production expected to drop by more than half a million tonnes, according to Mysteel.

Silicon peaks

The impact on some minor commodities markets was even more striking, with silicon prices hitting record highs this month after China imposed restrictions on supply. The quadrupling of silicon prices this year threatens to worsen the misery of aluminum producers, who depend on it as an alloying ingredient in specialized, value-added products.

The supply restrictions could also significantly affect the prices of polysilicon, a key input for solar power makers, according to Chinese research group Shanghai Metal Markets.

(Updates with the impact of corn processing under the sub-heading Food security)

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