Dual control and its impact on chemical supply chains

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China’s Dual Control of Energy Consumption and Energy Intensity

 

 

General Background

China’s current dual control policy was initiated in 2006 (China’s 11th five-year plan) and has been updated on an every-five-year basis.  The policy employed in 2016 set targets for both total energy consumption and energy intensity.  The targets limited annual energy consumption to 5 billion metric tons of standard coal equivalent in 2020, and reduced energy intensity by 15% in 2020 from the 2015 level.  In 2020, the consumption cap was met, but China's energy intensity only reduced by 13.2% in the 2016-20 period, falling behind the target.[1]

In March 2021, the National Development and Reform Commission of China (NDRC) released the outline of its 14th five-year plan, which proposed to further reduce China's energy intensity by 13.5% by the end of 2025. The cap for total energy consumption has not yet been specified and is expected in the detailed five-year plan for the energy sector to be launched soon.

On August 17, NDRC issued a notice that gave "red alerts" to 10 provinces that failed to meet either the energy consumption or intensity targets. The provinces - Guangdong, Jiangsu, Yunnan, Fujian, Shaanxi, Guangxi, Ningxia, Qinghai, Xinjiang and Hubei - were required to take corrective actions including cutting power supplies, especially to energy-intensive industries.

 

 Dual Control, Supply Chain


Central Policy

On September 16, the NDRC issued measures titled "The improvement plan of China's dual control system on energy consumption and energy intensity" that added to the pressure.

Under the September update, the approval and supervision of projects with an annual energy consumption above 50,000 metric ton of standard coal equivalent was tightened, and financial support to unqualified energy-intensive projects was halted.

The September plan also required authorities to tighten supervision and financing of "two high" projects -- involving both high energy consumption and high emissions -- that usually refer to coal-fired power projects and heavy industries like petrochemicals, chemicals, steel, non-ferrous metals and building materials that collectively account for more than 70% of China's CO2 emissions.

Local Impact

The following “Purple Provinces” have implemented strict revisions including Guangdong, a major paint province, Jiangsu, a major chemical province, and Yunnan, a major phosphorous chemical province, covering a total of 10,000 chemical companies.

 

Provinces

Impact

Qinghai

The power limit warning is issued, and the range of power limit continues to expand.

Some industries are required to reduce production capacity by more than 30%.

Ningxia

Lots of high energy consumption enterprises stop production for 1~4 months.

Some industries are required to reduce production capacity by more than 30-60%.

Many industries implement staggered production methods.

Guangxi

High energy consumption industries are limited in production by 20-60%.

Guangdong

Power limit started from Sep 16.

Some steel smelters cease production in whole Sep.

Fujian

The stainless-steel industry was notified of a power outage and production halt.

Xinjiang

Major industries are subject to heavy production cuts.

Yunnan

Yellow phosphorus suffers a 90% reduction in production from Sep to Dec.

Production of Fertilizer and basic chemical raw materials are reduced by 50-90%.

Industrial silicon industry cuts production by 90% from Sep to Dec.

Cement industry cuts production by more than 80%.

Shaanxi

Most of the high consumption projects are limited to 50% production.

Jiangsu

The operating rate of the caustic soda industry drops by 20%.

A large number of textile companies ceased production from Sep to Oct 1st.

The overall cement production will be restricted by 30%-50% (4-7 million tons).

 

Other “Red provinces” have also launched their own energy control policy.

 
Price increase of Chemical Products

The dual control of energy consumption has had a significant impact on the supply of raw materials. Accordingly, the prices of some related raw materials have risen sharply, and the growth rates of some products are as follows:

 

Product

1-Sep

31-Oct

Price

Increase

RMB/t

RMB/t

Increase

Rate

Yellow Phosphorus

29,000

46,667

17,667

61%

Silicon

26,000

41,375

15,375

59%

Caustic soda

2,530

6,000

3,470

137%

Epichlorohydrin

14,700

21,500

6,800

46%

Cyclohexanone

10,883

12,400

1,517

14%

Liquid caustic soda

846

2000

1,154

136%

Methanol

2,503

4,600

2,097

84%

Liquid chlorine

1,375

2,408

1,033

75%

Pure benzene

7,700

7,924

224

3%

Isopropanol

7,260

8,500

1,240

17%

Ethyl acetate

7,975

9,500

1,525

19%

Formaldehyde

1,289

2,080

791

61%

 

Short-term & Long-term Outlook

The recent round of dual-control-induced power and production rationing is expected to be gradually lifted during the fourth quarter.  The Chinese manufacturing sector activity is expected to decline next year with the moderation of export demand, while the services sector will continue to rebound to reshuffle some of the energy use toward less energy-intensive ends. This will make it directionally easier for provinces to meet their dual-control targets next year, reducing their likelihood of having to resort to last-minute control measures.

However, the dual-control policy will be one of the primary long-term tools that the Chinese government will use to meet its energy and climate targets.

 

What is Aceto doing in response?

Our priority is assurance of supply to our customers.  Our vast network of China based resources is monitoring the situation daily so that we can communicate immediately to customers who could be at risk of supply disruption.  We are leveraging our long-term relationships where-ever possible to ensure that we maintain priority as they allocate supply.  This is true for materials that we supply directly to customers as well as raw materials used in the production of our own products.

We’re always looking for multiple source solutions for our customers globally.  We’re leveraging those other solutions where-ever possible.

Reduced supply from China does have an impact on global product price even where there are options in other areas of the world.  Sometimes we have no choice but to raise our prices accordingly.  We’re happy to work with our customers to adjust accordingly as prices moderate.


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[1] Energy Intensity is measured by the quantity of energy required per unit output or activity, so that using less energy to produce a product reduces the intensity.