Why Manufacturers Should Pay Attention to Shanghai Blackouts

Monday, July 7, 2008 6:40
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Going back to some of my earliest posts on the Olympic Shutdown, I mentioned that there were three hot buttons for firms operating in China to consider when assessing their risk of shutdown.

The first was the level of air pollution in Beijing, and we have all seen in the last week that the government is putting into place a number of shutdowns to combat this.

The second was water. Beijing has been forced to divert water from Hebei as a precaution that the crowds don’t clean Beijing out of its water stock (which is already at emergency levels anyway).

and the third was power. Power supplies have been low for the last 18 months as a drought last year reduced the output of hydro power, the capacity issues on the railroad limited coal deliveries, and diesel shortages kept long haul trucks off the road.

for a firm to be at the highest level of risk of shut down they needed to be on all three of the watch lists for these issues. We all knew that air polluters were going to be taken offline, something that was well documented, and if you read through the coverage on the recent Shanghai blackouts you will come to understand why I think the government will take strong moves in the short term to nip this problem in the bud..

The State Electricity Regulatory Commission said in a statement in June that the country would face grave power supply challenges this summer.

The State Grid Corporation of China, the nation’s top power grid operator, is expected to face a shortfall of up to 10 million kilowatts this summer given high coal costs and the hot weather, the agency said

and that increases the risk of shutdowns again.

So, if you are an Aluminum smelter, or a firm that relies on Aluminum smelters (air conditioner manufacturers, big auto, etc), perhaps it is time for you to consider taking on a little extra safety stock because I have a feeling that in the process of forcibly removing demand from the grid the government will look for those that define the 80/20 rule.

UPDATE: China Daily just released Power loads rise in China that provides more details on the current power situation, and the problems to come

To learn more on these topics, you can go to my previous posts by clicking the Olympics or energy tags

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