Power outages in China to hit supply chains for steel, chips

The Korea Times

The Korea Times

Business

Sat, September 30, 2023 | 11:39

Companies

Power outages in China to hit supply chains for steel, chips

Posted : 2021-09-29 15:18

Updated : 2021-09-29 16:26

POSCO's stainless steel plant Zhangjiagang, a city in China's eastern coastal province of Jiangsu, has been partly suspended from operation due to power shortage in China. Korea Times file

By Yi Whan-woo

The widening electricity crisis in China due mainly to a continued coal shortage is threatening the stability of global supply chains for both steel and semiconductors ― and affecting the bottom line of certain Korean businesses.

A price surge in iron ore and other raw materials used for steel production is making the situation worse for POSCO, the country's top steelmaker.

It already has been forced to reduce operations for nearly two weeks at its stainless steel plant in Zhangjiagang, a city in China's eastern coastal Jiangsu Province.

Regarding semiconductors, industry sources say the power shortage could affect the production of automotive chips, which is already falling short of demand, that in turn may deal a blow to global carmakers.

"Steel mills consume a massive amount of electricity, and the shortage could push POSCO's plant there into a corner at any time, especially considering winter is approaching and energy demand will rise," Joo Won, deputy director of the Hyundai Research Institute, said Wednesday.

POSCO's suspended operations come as a result of the Jiangsu provincial government joining a nationwide campaign to reduce power supply for industrial purposes. The campaign has been widened due to the backfiring of China's "unofficial" import ban on Australian coal in response to a bilateral diplomatic row, leaving the country struggling to find alternatives.

Australian coal accounts for nearly one-third of China's coal imports.

"The steel mills in Jiangsu have been compelled to suspend operations since Sept. 17," a POSCO official confirmed, noting the power-saving measure is also affecting other industries including cement and glass that are sectors with a high demand for electricity. "We believe the electricity crisis will be over by next month."

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Samsung Electronics runs its only overseas memory chip plant in the Chinese city of Xi'an. Korea Times file

An analyst who spoke on condition of anonymity said the possible disruption of global supply chains could affect Samsung Electronics and SK hynix, the world's top two memory chipmakers.

The former has a plant in in China's northwestern city of Xi'an and the latter in Wuxi, Jiangsu, which is about 30 kilometers away from Zhangjiagang.

Regarding the estimated possible fallout from the power shortage, Samsung Electronics and SK hynix said their respective China plants were operating as usual.

"We have not heard about any problems with the power supply in our business area," a Samsung Electronics official said, Wednesday.

On the sidelines of his participation in a recent industry event in Seoul, SK hynix CEO Lee Seok-hee told reporters that the memory chip supplier's Chinese operations haven't been affected. "Our operation in China has not been disrupted at all," Lee said.

"I believe the concerns that are said to be related to SK hynix's business are those that are facing the chip industry in general."

According to Lee, the SK Group affiliate will benefit from raised demand for semiconductors which will remain solid throughout next year based on the growth of the 5G wireless technology sector, and the release of new central processing units (CPU) as well as solid-state drives (SSD)

Regarding the estimated impact on annual revenue, POSCO, Samsung Electronics and SK are hoping that the power shortage situation will be resolved soon, and that their production will not be impacted.

Other Korean companies operating in China include Hyundai Motor, Kia, LG Chem and Samsung Display.

Their poor sales performance in China ironically left plants of Hyundai Motor and Kia unaffected by the shortage. For instance, a Kia factory in Jiangsu has been rented out to a Chinese company.

LG Chem have plants in Wuxi, and the LG affiliate said it has been been keeping an eye on the situation.

The case is similar for Samsung Display that manufactures OLEDs and their modules in Tongguan and Tianjin.

yistory@koreatimes.co.kr