The electricity crisis in China is shocking the Australian wool industry. The price of agricultural inputs is also expected to increase
The Chinese government imposed restrictions on the use of electricity, which had an immediate impact on its manufacturing sector and on world markets such as wool.
- Restrictions on electricity consumption in China are forcing woolen mills to cut production
- The Australian wool market fell sharply this week in response to the news
- The energy crisis is also expected to affect the global prices of fertilizers and glyphosate
Australian Wool Innovation (AWI) chief executive Stuart McCullogh said some Chinese factories had cut production this week by up to 40% due to the power cuts.
“There are probably five big fat wool processors in China and some of them are domiciled in these provinces. [affected by power cuts], so it will have an effect, ”he said.
“How long is this going to last… it’s completely out of our control.”
Australia’s wool industry benchmark, the Eastern Market Indicator (EMI), closed the week at 1337 cents per kilogram, down 31 cents, with a high transmission rate of 22.7% .
What caused the energy shortage?
It is understood that power producers in China have been forced to limit supply due to the limited supply of coal and high prices.
According to Rabobank analyst Wes Lefroy, the energy rationalization also comes at a time when China seeks to reduce its greenhouse gas emissions.
He said industrial manufacturing had been hit the hardest and for Australian farmers this could lead to higher prices for fertilizers and glyphosate.
“This [energy] the announcement will have major implications for [the price of] inputs, especially for glyphosate, ”he said.
“China is responsible for 65% of the world’s production of glyphosate and a large part of Australia’s imports of glyphosate.
“What I hear from my colleagues in China is that there is going to be a 40% reduction in the production of yellow phosphate, which is a raw material in the production of glyphosate, and therefore we are expect a sharp decrease in the level of glyphosate production. “
How long can this last?
Australian Wool Exporters Council chairman Josh Lamb said Chinese buyers expected potential closures of up to six months.
“Most factories face power restrictions during the height of summer in China, but this is the first time [there are] restrictions outside this period, ”he said.
“We’re just getting into the first part of the season… and things are just starting to pick up steam now at auction with producers wanting to sell their wool, so now is not the right time for us.
“It could put a damper on the market over the next few months if factories cannot operate at 100% capacity, they will be less inclined to buy the usual amount than they would most weeks.”
Tianyu Wool’s global purchasing manager Angus Hook said the power restrictions had an immediate impact.
“We only learned of the closure at the beginning of the week,” he said.
“Fortunately, we have solar power in our best performing factories, so we can work during daylight hours.
Rabobank’s Wes Lefroy said much of China’s pollution restrictions will likely remain in place until at least after the Beijing Winter Olympics in February 2022.