Request a Demo
The chemical industry continues to experience unprecedented supply chain constraints due to China’s power shortages, dual control model, Winter Olympics restrictions, law enforcement and other policies, which has significantly disrupted chemical product availability and may continue to drive cost increases.
Power outages
China experienced serious power outages in later 2021. It is mainly because of the shortage of coal in the domestic market and surging prices which are due to a mixture of supply chain issues and government policies. Although the regulators updated the price range for power generation, it is still not enough to cover the rising cost of coal. Rather than operate at a loss, utilities shut down powerplants or reduced output, resulting in power shortages that have significantly impacted the manufacturing industries. Two-thirds of provinces, such as Guangdong, Jiangsu, Zhejiang, etc. are forced to employ different degrees of load-shedding measures. Energy intensive sectors have to cease their operations to preserve power for residential use. The production interruptions at chemical factories in China add big problems for global chemical supply chains that already were snarled from pandemic-induced lockdowns.
"Dual control" strategy synergized with climate goal
The chemical industry is also greatly affected by the "dual control" policy. "Dual control" is a key measure that the government implements to reduce energy intensity and to limit total energy consumption, which will help meet national energy and climate goals. Furthermore, China has made ambitious carbon pledges in September 2021 to achieve a peak in carbon dioxide emissions before 2030 and carbon neutrality before 2060. The strong synergy between “dual control” and carbon emissions has turned it into a highly prioritized nationwide campaign and forced many of the manufacturing-reliant provinces to employ power rationing and production curbs. According to the 14th five-year plan, China's energy intensity will be reduced by 13.5% by the end of 2025. As the policy continues to upgrade, supervision and financing on the “dual-high” projects—projects with high energy consumption and high emissions, including coal-fired power projects and heavy industries like petrochemicals, chemicals, steel, non-ferrous metals and building materials, etc. will be tightened. According to NDRC’s data, some major chemical provinces, e.g., Jiangsu, Guangdong, have failed to meet either the energy consumption or intensity targets in the first half of 2021, which brings in more local government actions to catch up goals.
Winter Olympics and new year holiday's restrictions
There are some restrictions during the upcoming Winter Olympics that can also take a toll. According to the Announcement on the implementation of traffic control measures on relevant roads during the 2022 Beijing Winter Olympics and Winter Paralympics, the authority determined to take time-sharing and section-by-section traffic control measures for some road sections in Beijing, for a total of 96 days from December 26, 2021 to March 31, 2022. The Announcement on the safety production management of hazardous chemicals during the 2022 Winter Olympics and Winter Paralympics stipulates 11 strict control measures for hazardous chemicals units to follow.
Furthermore, as routine, during the Chinese Lunar New Year festival period, many provincial governments will carry out special measures on the transport of hazardous chemicals and dangerous goods, going all-out for ensuring safety during the largest human migration.
New Work Safety Law
The revised Work Safety Law took effect on September 1, 2021, which established an entire personnel responsibility system in place of the original “principal person in charge” responsibility system. The employees in different positions should also take their corresponding responsibilities for work safety. The revised law governs more illegal acts and imposes harsher punishment. Offenders can be fined for each passing day they do not rectify the situation and the maximum fine for a workplace accident can reach 100 million yuan. To manufacturers, it’s a really sweeping law and also burdensome to comply with.
Environmental law enforcement
China’s environmental issues are long-standing and deep-seeded, to address which Chinese environmental law enforcement has surged in frequency and intensity in these years. MEE has carried out high-profile central environmental inspections since 2016. In 2021, China’s second round of central government environmental inspections (batch 3 to 5) were wrapped up in 17 provinces and the follow-up reviews will be conducted in 2022 to enhance environmental protection efforts.
As disclosed in the 14th Five-Year Plan for Construction of Integrated Administrative Law Enforcement Teams for Ecological and Environmental Protection, a total of 833,000 environmental administrative penalty cases were handled nationwide from 2016 to 2020, with a fine of 53.61 billion yuan. The Chinese government will not ease up on the pollution control campaign in the next five years. Many “scattered, messy and polluting” companies have been shut down and we could see more similar companies likely to be affected.
What we heard
ChemLinked has learned from our members that their cost of sealing a deal is increasingly expensive as the prices of raw materials are soaring, or some suppliers in China stop production and the orders have to be canceled due to the above situations. They are trying to engage new suppliers. However, some specialty refined chemicals may not have broad distribution. Thus, it may not be easy to fill the supply gap.
ChemLinked will keep a close eye on it.
