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Power shortage lengthens lead times in China

Delivery can now take as long as four months as makers have to schedule production around power cuts. Export prices are likely to increase in H2 2011 as well.

Dubbed as China's worst electricity shortage since 2004, this year's deficit and subsequent rationing are forcing manufacturers to switch work to night shifts or use generators to meet their production schedules.

Power shortage lengthens lead times in China

Electricity is generally rationed based on the products made. Factories producing low-value products in high energy-consuming industries are hit the hardest, having to reset their manufacturing plans frequently. Because of preferential government policies, high-technology companies such as LED makers are assured of sufficient supply. Manufacturers typically lose power one or two days per week. Factories may have electricity for three consecutive days, none the next and power again for the following three. In other weeks, they may have electricity for five days and none for two.

The lack of electricity is compounding the challenges makers already face with the labor shortage, particularly in terms of meeting production deadlines. As many are concerned about the fines buyers could charge them for late deliveries, there now is hesitation in accepting large-volume orders.

Beijing Light Stationery Mfg Co. Ltd general manager Li Zhi Zhong said some stationery and furniture makers in Hebei province have staggered production with deliveries scheduled up to March 2012. Lead times have been extended from 45 to 60 days to between three and four months.

Guangdong Galanz Enterprise Group Co. Ltd's overseas market general manager Liu Gui Zhong said the power rationing may force them to subcontract production to ensure on-time delivery. This is particularly crucial during the peak manufacturing months of July and August.

Apart from extending lead times, the rotating power schedule has had a major impact on manufacturing costs. Factories with back-up generators are spending more on diesel than on electricity fees. Shenzhen Stanford Power Equipment Co. Ltd said regardless of wattage, a generator needs 5 to 6L of diesel to run for an hour. It costs $0.31 to generate 1W, 100 percent more expensive than state grid charges.

The Q2 electricity gap in Guangdong province is estimated to reach 4GWh. In Foshan, where electricity has been rationed for a month now, ceramic tile makers are likely to raise export prices 10 to 15 percent in the next few months. The director of the city's China Ceramic Industry Association office, Lan Wei Bing, said some suppliers are also extending deliveries by 10 to 15 days.

In Shunde, some makers of hardware parts that bought 50kW generators years ago now intend to procure 100kW version in preparation for the peak season. Purchasing the units and running on generators through the power cuts are expected to raise costs by at least 5 percent.

Surging demand

Rising coal prices, soaring energy consumption and government efforts to curb utility cost increases ushered an early start of China's electricity outages. Typically occurring at the height of the summer and winter months, this year's shortage and resulting power rationing started in April. More provinces are affected as well, including Zhejiang, Guangdong, Hunan, Hubei, Jiangxi, Jiangsu, Anhui, Shanxi, Shaanxi, Henan and Sichuan.

Data from the China Electricity Council shows the country's five major coal-fired power generators ran a $1.6 billion deficit in the first four months of this year, up $1.1 billion compared with the previous corresponding period. The latest thermal coal prices from the Bohai Bay Rim Economic Region averaged $127 per ton, up 8 percent. Prices have been rising for the past nine weeks, but power generators were not allowed to boost electricity charges as one of the government's efforts to keep inflation at bay. Beijing has since softened its stance, raising electricity charges for industrial users in 15 provinces by an average 16.7 yuan ($2.58) per megawatt hour.

At the same time, China Energy Bureau statistics indicate nationwide consumption in Q1 2011 increased 13 percent to 1.09TWh. Electricity use in March and January 2011 was also close to July and August 2010 levels. During the period, the China Electricity Council noted chemical, building materials, iron and steel smelting, and nonferrous metal smelting were the four industries that consumed the most power. Combined, these sectors used up 351.2GWh of electricity.

While there were coal-fired power plant projects slated for construction in central and eastern China, these were shelved for environmental reasons. Approval was granted for new energy companies to set up power generators in northwest China, but supply currently cannot meet high demand in the central and eastern provinces.


Note: This article "Power shortage lengthens lead times in China" was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.

All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.

Disclaimer: All product images are provided by the companies interviewed and are for reference purposes only. Those product images featuring products with trademarks, brand names or logos are not intended for sale. We, our affiliates, and our affiliates' respective directors, officers, employees, representatives, agents or contractors, do not accept and will not have any responsibility or liability for product images (or any part thereof) which infringe on any intellectual property or other rights of a third party.

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