Most metals retreat on severe power crunch in China

Subramani Ra Mancombu Chennai | Updated on September 28, 2021

Coal prices zoom to record level, nickel worst hit; GDP growth forecast lowered

Most of the metals traded across the globe declined on Monday on concerns over a severe power crunch in China that has resulted in growth forecasts for the Communist nation being cut.

Nickel bore the brunt of the Chinese power crisis as its prices dropped by 2.3 per cent to $18,959 a tonne on Monday and a further two per cent on Tuesday. It was quoted at $18,585.

Copper slipped 1.1 per cent on the London Metal Exchange (LME) to $9,258 on Tuesday. Tin dropped by four per cent on Monday but pared its losses a tad on Tuesday. Similarly, other metals such as aluminium, zinc and lead cut their losses. Lithium was another metal to be affected by the Chinese developments. The London Metal Exchange (LME) index slipped 0.69 per cent to 4,312.40.

Coal zooms to record

China’s Global Times reported that Beijing had imposed nation-wide power curbs caused by a slew of factors, including rising coal prices, surging demand and the nation’s commitment to cut carbon dioxide emission sharply by 2030.

Coal prices surged to a new high of $210 a tonne on Monday on Zhengzhou Commodity Exchange. Beijing is in a way paying for the ban it imposed on imports of Australian coal following a diplomatic row.

India has been tending to buy Australian 5,500 kcal/kg coal, which ended last week at $108.20 a tonne.

The power situation is expected to turn grim as winter draws near. The power crunch has resulted in industrial production being affected in provinces such as Jiangsu and Guangdong, besides other key regions. In one case, the daily reported, a textile factory in Jiangsu province received notice about power cuts and that it would not receive supply at least until October 7. Hundreds of companies in the province faced similar problems.

GDP growth estimate cut

In China’s Guangdong’s province, problems of power supply have affected the popular Dongguan Yuhong Wood Industry in Dongguan.

The forecast downgrading China’s GDP growth, besides the power crunch, is likely to affect consumption of metals from steel to tin. Nomura Holdings said the power shortage has already led to production losses at smelters and steel mills from April this year.

Dutch multinational investment firm ING’s economic and financial analysis arm Think said Fujian province, from where many Chinese stainless steel production firms operate, will start power rationing soon. This will result in production cuts by steel units and, in turn, affect demand for nickel.

In view of the power crunch, Japanese financial services firm Nomura Holdings has cut its forecast for Chinese GDP growth to 7.7 per cent from 8.2 per cent. Fitch Ratings has lowered its projections for China’s GDP growth to 8.1 per cent from 8.4 per cent. US multinational investment firm Goldman Sachs has cut its GDP growth forecast for Beijing to 7.8 per cent from 8.2 per cent.

Quick Covid recovery

A major reason for the power shortage in China is that being first in the world to recover from the pandemic, the country was flooded with export orders and industrial units began working overtime to meet the demand.

This economic recovery resulted in electricity consumption in the first half of the year rising by 16 per cent compared with the same period a year ago. Besides, due to typhoons and droughts, power demand peaked last week.

Chinese authorities are now toying with the idea of curbing industries that consume heavily and to regulate electricity distribution of electricity. Usage efficiency could now dictate the quota of power supplied to industrial firms.

As part of its decarbonisation efforts, China, a critical region in tackling climate change, has vowed to cut carbon dioxide consumption by over 65 per cent by 2030 from the levels recorded in 2005.

However, Chinese traders are expecting these measures to have only limited impact on the commodity markets.

Published on September 28, 2021

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