Electricity rationing in China will impact supply chains

Key manufacturing areas in China such as Guangdong, Jiangsu, and Zhejiang, are subject to electricity rationing measures. As of today, 20 out of 31 provinces in China are subject to restrictions to various degrees. The electricity shortages are caused by a combination of factors, like high coal prices, unpredictable weather patterns, and challenges of meeting energy and emissions goals.

Coal prices have more than doubled in the last year, causing electricity costs to surge. According to the National Reform and Development Commission, power prices may rise to 20% higher than current levels or to pre-approved benchmark prices set by the government.

Additionally, new reforms may entail that industrial and commercial users will have to purchase electricity at market prices, rather than through the current power purchasing scheme that has kept costs artificially low for large consumers. This may result in an increase in production costs.

Source: maersk.com

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