Regions under power rationing
Inner Mongolia, Guangdong, Guangxi, Jiangsu, Zhejiang, Anhui, Jiangxi, Shandong, Heilongjiang, Yunnan, Guizhou, Shanxi, Shaanxi, Liaoning, Sichuan, Hunan, Ningxia
Summary of power rationing policies
On August 31, Inner Mongolia issued a document stating that the power shortage is expected to continue until the end of the year. It is recommended that the industrial enterprises to use electricity in an orderly manner in August - December.
Guangdong Power Grid stated that it will require local plants to close for 5 days in a week, and operate off the peak of demand.
Guangxi has urged the local plants to strictly follow the requirements of dual control of energy consumption, and adopt the off-peak power consumption scheme. The local plants may operate in the night of the weekends to minimum the negative influences of power shortage.
Jiangsu has required local enterprises to limit production to varying degrees according to the Energy Consumption Dual Control Plan on September 19, 2021. Category A companies shall not consume more electricity than the same period last year; Category B companies shall reduce their power consumption by 10%; Category C companies shall take turns to operate; Category D companies shall cease all production.
As of September 27, some short-process and long-process enterprises in Zhejiang have all received production restriction notices. The production reduction plans of short-process steel mills are mainly concentrated on September 13 - 30.
In order to ensure the smooth operation of the power grids and reliable power supply, the orderly power utilisation plan will be officially initiated on September 22 in Anhui.
The control of energy consumption intensity in Jiangxi has failed to meet the national requirements. As such, the province will not approve any new energy and pollution-intensive projects except for those planned according to national strategy in order to ensure the completion of energy consumption control target for 2021.
Recently, Rizhao, Zaozhuang, and Zibo in Shandong Province have all adopted power rationing measures. In September, more steel mills in Shandong were restricted by power rationing and production reduction policies.
The National Development and Reform Commission (NDRC) issued the Emergency Notice on Doing a Good Job in Orderly Utilisation of Electricity, and market entities that refuse to implement the scheme will be removed of their qualifications for market transactions. Enterprises whose electricity consumption exceeds quota without authorization shall be ordered to make rectifications, and those that cause serious impacts due to non-implementation of orderly electricity use measures shall be held accountable. Some steel companies stated that they have received such notices of power rationing, and some steel plants have taken measures to reduce production, which mainly affects the output of building materials.
Yunnan has intensified the control over power consumption across the province. Yunnan required the steel industry to adjust the production schedules on the basis of ensuring the completion of the crude steel production reduction target in 2021, by postpone some of the production plans in September to November-December.
Shanxi will guide the enterprises to operate off the peak of demand. Companies that adopts off-peak power consumption scheme will apply time-of-use electricity prices in accordance with the relevant rules of the spot market to reduce electricity costs. Local blast furnace mills have reduced the use of public power supply by using self-generated electricity, thus the impact on output will be limited.
On September 23, the orderly consumption of electricity was implemented in Liaoning.
The State Grid Hunan Electric Power stated that in accordance with the requirements of "limited insurance", it will give priority to power supply to people's livelihood, public utilities and public welfare service places. It is recommended that the power-consuming facilities such as lighting engineering, landscape lighting, and large commercial advertising screens be shut down during special period.
Impact on the supply side and SMM analysis
For the steel industry, the specific timeline of energy consumption control and power rationing policies is not clear in many places, with most of them temporarily being set at the end of September. Some provinces, including Jiangsu and Zhejiang, have issued phased measures, which have significantly pulled down the output. For example, the output in Jiangsu has dropped by more than 80,000 mt/day, especially rebar.
Impact on downstream operating rates and SMM analysis
Power rationing has also impacted the downstream processing and manufacturing sectors.
Impact on steel prices and SMM analysis
As the production reduction policies continued to intensify, the follow-up supply will be declining. Currently, the downstream restocking demand is likely to be robust in the last trading week ahead of the National Day holiday, thus the near-term inventory will continued to fall, support steel prices.
YTD price change
The prices have surged by nearly 20% since the beginning of this year.
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