Simple Months after widespread covid shutdowns in Shanghai disrupted supply chains and forced manufacturers to halt operations, China is again seeing an increase in factory shutdowns.

This time the culprit is not the coronavirus, but an intense heat wave and drought in southern China around the Yangtze River basin. Water levels behind dams are drying up, curtailing power generation at hydroelectric plants, just as demand for air conditioning is increasing.

To avoid power cuts, authorities in Sichuan province – which depends on hydroelectricity for about 80% of its energy needs (link in Chinese) – have ordered factories to cease operations.

China closes factories to save energy

Data from Everstream Analytics, a provider of supply chain data and risk analytics, shows a sharp rise in factory closures in China over the past week. Starting Wednesday, August 17, Everstream had recorded 39 closures, more than double the previous week’s total, even though the week was only half over.

“It will likely have as much impact, if not more, than the lockdowns earlier this year” in Shanghai and nearby Kunshan, said Mirko Woitzik, global director of intelligence solutions at Everstream Analytics.

In part, Woitzik said, it’s because while covid-related factory shutdowns can theoretically be targeted to areas with high infections and operations can gradually resume under “closed-loop” conditions, effects of power outages are more widespread and indiscriminate.

Among the major automakers that have had to shut down operations in Sichuan are Japanese automaker Toyota and Chinese lithium battery giant CATL.

Critical raw material companies have also been affected, and the effects will ripple through the supply chain. For example, Tongwei, the world’s largest supplier of polysilicon – a key raw material for solar panels – has suspended production, as has lithium producer Yahua Industrial (link in Chinese).

It’s not just China that is grappling with the economic repercussions of high temperatures and dry spells this week.

Mary Hui

In Germany, the hot, dry summer has brought water levels on the Rhine, a key sea route for Europe, to extremely low levels, disrupting trade as the river becomes too shallow for many ships transporting goods and fuels can pass.

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