Power Crisis; Toyota, CATL Shut Plants In Sichuan

(Image source: Bloomberg)

Toyota Motor Corporation and Contemporary Amperex Technology Co (CATL), one of the world's leading battery makers, are closing their factory in China's Sichuan province amid a worsening power crisis caused by a drought.

According to the company spokesperson, the Japanese automaker closed a factory in Chengdu, the capital of the province, and will continue to cease operations until August 20.

Contemporary Amperex halted activity at its major lithium battery base in Yibin through the same date, a local business publication reported.

Sichuan, one of the provinces with the highest population in China, depends heavily on hydropower. This makes it especially susceptible to heat waves and drought, which are increasing demand for air conditioning and depleting reservoirs behind hydro dams.

It serves as a major centre for manufacturing and is essential for the manufacture of commodities like lithium and polysilicon, which are essential for the energy shift.

It serves as a major centre for manufacturing and is essential for the manufacture of commodities like lithium and polysilicon, which are essential for the energy shift.

The southwestern province has become a key development hub for battery makers aiming to harness hydropower to reduce emissions in their production processes.

According to BloombergNEF, CATL has the second-highest capacity after Fujian in the province with roughly 100 gigawatts of both present and planned capacity.

The plant closures are the latest in a string of rising industry closures, from solar panels to aluminium smelting.

On Monday, Volkswagen AG stated that power constraints were affecting its Chengdu production, but that it only anticipated minor delays in customer deliveries.

Although it also produces Apple iPads in the area, Foxconn Technology Co. claimed that the drought's effects have been quite mild thus far.

The local government instructed factories to suspend activities through Aug 20, said Shiori Hashimoto, a spokeswoman for Toyota.

According to the manufacturer's website, the Chengdu plant creates roughly 30,000 vehicles annually, including the Landcruiser Prado.

A request for comment sent through email to CATL didn't receive a response right away.

Due to Sichuan's particular reliance on dams for electricity, a significant power crisis is expected to be primarily contained to Sichuan while other regions of China are experiencing curtailments on a lower scale.

That still means that a region with a population comparable to Germany and an economy larger than Turkey will experience delays at a variety of factories for close to a week.

In preparation for summer, generators loaded up on coal as the demand increased due to viral lockdowns because many Chinese provinces now rely more heavily on coal for power.

According to the government's main planning body, the hot wave has changed that, as coal use for the first two weeks of August increased 15% from a year earlier.

Mine closures are being caused by floods in the northern Shanxi province, which is the world's largest producer of coal, and if they continue, they may have an effect on the larger electrical market.

After reaching above 40 degrees in several areas of Sichuan on Tuesday, temperatures in Chengdu reached as high as 38 degrees Celsius Wednesday. The humidity made it feel even hotter.

As the city's power shortfall worsens, some office buildings have turned off their air conditioning, according to Securities Times.

The National Meteorological Center issued a warning this week that the drought could harm crops and impede growth because Sichuan is a significant producer of rice and corn.

The larger Yangtze River basin is also being affected by the heat wave, which is not simply Sichuan.

The world's largest dam, the Three Gorges Dam, in the neighbouring province of Hubei, will release more water in the following five days to help replenish the middle and lower reaches of China's largest waterway, according to state-run Xinhua News. Only light-to-moderate rain is predicted for the next week.

More than 70% of Sichuan's steel mills have either stopped production or begun rationing as a result of the power outages, according to a report this week from Mysteel.

An aluminium smelter called Henan Zhongfu Industry Co. is shutting down some of its Sichuan production facilities for a week.

Source: Bloomberg