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Power Crunch in China leading to a 10% to 15% reduction in supply of paper packaging material

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Power Crunch in China affecting Paper Industry

Power Crunch in China leading to a 10% to 15% reduction in the supply of paper packaging material

China is struggling with a severe shortage of electricity which has left millions of homes and businesses hit by power cuts.

China | 9th October 2021 | The Pulp and Paper Times:

The hit from China’s energy crunch is starting to ripple throughout the globe, hurting everyone from Toyota Motor Corp. to Australian sheep farmers and makers of cardboard boxes.

The extreme electricity shortage caused by soaring prices of coal in the world’s largest exporter is set to hurt China’s own growth, and the knock-on impact to supply chains could crimp a global economy struggling to emerge from the pandemic.

The extreme electricity shortage caused by soaring prices of coal in the world’s largest exporter is set to hurt China’s own growth, and the knock-on impact to supply chains could crimp a global economy struggling to emerge from the pandemic.

If the electricity shortages and production cuts continue, they could become yet another factor causing global supply-side problems, “The power cut in China is causing a major sluggishness in various products export to world, thus the packaging material use in wrapping of products like paper bags, boxes and other paper board packaging is facing a demand shortage” says a Industry expert.

The Pulp and Paper Times try to peep into the matter and drop a mail to Mr. Zhao Wei, President, China Paper Association, In a reply, Mr. Wei accepts that some industries have been affected due to power shortage, said " Several individual enterprises have been affected, and the overall operation of the industry is stable and has not been affected.
At present, it is hard to see the change of output".

Paper
According to a Media report, production of cardboard boxes and packing materials was already strained by skyrocketing demand during the pandemic. Now, temporary shutdowns in China have hit output even harder, leading to a possible 10% to 15% reduction in supply for September and October, according to Rabobank. That will add further complications to businesses already suffering from the global paper shortage.

Power cut has affected the paper production also. Even chemicals, dyes and furniture firms have been affected. Production at a popular steel and wood firm, Dongguan Yuhong Wood Industry, in Guangdong’s province in Dongguan has been affected. .

The downfall in paper production in Chinese factories can give opportunities to Indian paper manufactures to supply paper in China.

“This is looking like another stagflationary shock for manufacturing, not just for China but for the world,” said Craig Botham, chief China economist at Pantheon Macroeconomics. “The price increases by now are pretty broad-based -- a consequence of China’s deep involvement in global supply chains.”

Beijing has ordered coal mines to increase production and is scouring the world for energy supplies at it tries to stabilize the situation. The impact on the global economy will depend on how quickly those efforts bear fruit. Many Chinese factories reduced production for this week’s “Golden Week” holiday, and economists are closely watching whether power shortages will return as they ramp up again. 

Power use curbs on the most energy-intensive industries such as steel, aluminum and cement will persist for months and China will continue to aggressively target imports of natural gas, adding to global price pressures, they said.

With thermal coal futures in China hitting an all-time high of $212.92 per tonne earlier on Wednesday, the rising prices have put further pressure on power utilities unable to recoup added fuel costs.

According to an analysis paper by S&P Global on Wednesday, the issues have been exacerbated by China’s own attempts to intervene in the crisis which it described as a “tinderbox of issues”.

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