Power Shortage Arrives Early: Printing and Allied Industries Brace for a Faster Reshuffle

With supply and demand squeezing from both sides at once, this year's large-scale power shortage has shown up well ahead of schedule. The China Electricity Council has issued a warning: the electricity gap during the summer peak season will be substantial even on conservative estimates, and it could widen further. The council describes it as the biggest power shortage China has faced in years, unprecedented in both reach and severity.

Power shortages are nothing new, so why has this one come so early?

Before the peak consumption season has even begun, regional electricity loads are already sounding one alarm after another. Industry observers point to several drivers: high-energy-consuming industries that have proved hard to rein in, a severe drought in the south that has constrained hydropower output, and an inversion between coal and power prices that has left coal-fired generators losing more than they earn.

Beyond the supply-demand imbalance that leaves generation lagging demand, another shift deserves attention: after most provinces, autonomous regions and municipalities met their energy-saving and emissions-reduction targets, curbs on shutting, suspending or restricting high-energy-consuming plants have eased. Rising order books at those plants will inevitably lift electricity use at export-oriented manufacturers. A recovering economy, meanwhile, has pushed corporate power demand higher as well.

What the Power Shortage Means for Printing and Related Industries

Once a shortage takes hold, affected industries inevitably trim output to limit losses, which in turn pushes prices up to offset the profit lost to lower production. Following that logic, chemicals, steel, cement, coal, diesel engines and other sectors have all responded.

Take chemicals. Past experience shows the sector is among those hit hardest by power rationing: tight electricity supply dampens downstream demand to some degree, while chemicals with a high electricity-cost share see prices driven higher by cost pressure.

Steel, another heavyweight energy consumer, is also on the front line. Data show steel accounts for a large share of total electricity demand, making it the single biggest power-consuming industry. For now the tightness is mainly regional, concentrated in East and South China. But the shortage's effect on a basic industry like steel is more complicated: in the short term, rationing eases the continued expansion of steel supply, yet it can also feed through to downstream demand, leaving the demand side vulnerable to later shifts.

When the Power Shortage Hits Printing and Related Industries: Persevere or Pull Out?

First, power rationing will put further pressure on papermaking capacity, and paper supply will fall faster than demand over the coming period. On the question of electricity supply, Wu Yanfang, securities affairs representative at Jingxing Paper, said the company has not been subject to rationing so far and that, as the largest local enterprise, it expects the government to take its power needs into account. The company has just completed a paper price increase at the end of the month. For papermakers, rationing will undoubtedly deliver some revenue growth, particularly for those with their own power generation.

Second, in this writer's view, rationing may add to the burden on printers and flexible packaging converters — as noted above, it will drive paper prices up again. For these businesses, paper, ink and other consumables are no small expense. As market demand for polymers, solvents and fabrics grows, raw material costs have been climbing steadily, and the two ink giants, Flint Group and Sun Chemical, have already implemented price increases on ink and auxiliary materials. Add the paper price rise triggered by the current shortage, and the industry takes yet another heavy blow.

Yet as the nationwide peak power-consumption period arrives, combined with the steady climb in raw material prices over recent days, the impact on the industry will be significant, and high-energy-consuming, low-capacity producers will be hit devastatingly. At that point, it will help drive a reshuffle across the printing and related industries, sharpen printing companies' awareness of energy saving and emissions reduction, and steer the sector toward healthier, more orderly development.

The advice, then, is not to be blindly discouraged by a temporary crisis the power shortage has inflicted on the whole industry, but to start from within: raise energy-saving and emissions-reduction awareness and upgrade energy-saving processes and measures, so as to stay standing at the crest of the industry's great reshuffle.

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-369986.html