Posted14 October 2021, 08:16
Energy prices are soaring in China, causing production costs in the country to rise unprecedentedly. Factories are shut down.
At its strongest in 25 years: The rise in production costs increased last month in China at a record rate, according to official figures released Thursday, against a backdrop of soaring commodity prices that are weighing on the activity of the workshop of the world.
The global recovery has led to a sharp rise in the cost of raw materials, especially coal, on which China is heavily dependent to power its power plants. Electricity producers are struggling to recoup their costs but cannot pass the price increase on to their customers because China regulates electricity prices.
Consequence: power plants are idling despite strong demand and electricity is rationed, which has boosted production costs for companies. Last month, the producer price index rose 10.7% over one year, the National Bureau of Statistics (SNB) announced on Thursday.
This is its highest pace on record, according to NBS data, which dates back to October 1996. This result is higher than that of August (9%), which was already a 13-year record. In September, “prices in industry continued to rise as a result of rising coal costs and in some energy-intensive sectors,” noted Dong Lijuan, a BNS statistician.
Coal prices rose 74.9% year on year last month. This surge in prices has led to the total or partial closures of factories, which are struggling to be supplied with electricity while the authorities are imposing electricity rationing in several regions.
This penalizes production, pushing up costs for companies at a time when global supply chains are already under strain. In China, electricity prices are regulated and cannot fluctuate more or less 10%.
To alleviate these shortages, the government on Friday authorized an exceptional increase in electricity prices to allow producers to recoup their costs. This increase is capped at 20% for companies but without limit for energy-intensive sectors such as steel.