Power shortage in China to weigh on the pesticide manufacturers

Emergence of the power shortage in China has led power rationing in some places such as Zhejiang, Hunan, Jiangxi, Chongqing, Guizhou and Jiangsu. Zhejiang, a large chemical and pesticide producer, has encountered the most serious shortage in past seven years.

Superficially, power shortage was caused by multiply reasons such as the contradiction in coal supply, development lag of the hydroelectric and high oil prices, but the fact of the matter is the increasing industrial projects. There is no immediately ease to the strain, operation suspension of the energy-intensive consumers during the fourth quarter last year might reappear this year, which will result in higher cost of the pesticide materials for some time and dilute the profit of the pesticide companies.

The power rationing last year has made liquid chloride a price climax of 3000 Yuan per ton in Eastern China, and the prices of phosphorus, sulphur, hydrofluoric acid, fluorides, methanol, formaldehyde, sulphur acid have ballooned as well. Current relatively stable prices of the above inorganic materials are caused more by the off-season consumption of the power and hence the prices are bound to increase with the advent of peak season, which will ripple the price of the pesticide industry.

Together with high price of the crude oil, the earthquake in Japan has made high and volatile prices for the organic chemicals. Though the high shock of the crude last month has shown sign of shrink, the downturn is more unlikely because of the worldwide recovery of economy. Furthermore, Chinese producers are accustomed to reserve more diesels in coping with the power shortage, which will contribute to tight supply of crude oil in China. The linkage between organic materials and crude oil as well as other resource such as coal and gas could form a major part of the higher price of the organic materials.

For Chinese manufacturers, a more practical way is to watch the price tendency of the materials and make some reserves in cushioning the pressure of higher material costs to some extent.

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