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Commodities: Beijing orders to secure fuel supplies

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Beijing ordered state-owned energy companies in China to ensure sufficient fuel supplies for the coming winter at all costs, according to a report released Friday.

Beijing will not tolerate power outages, according to Bloomberg News, citing sources close to the matter. Vice Premier Han Zheng has instructed energy companies to ensure there is enough fuel for the country to run smoothly. Han Zheng, who oversees the country’s energy sector and industrial production, was at an emergency meeting with officials from China’s state-owned assets regulator and Beijing’s economic planning agency this week, the same sources said.

According to data released Thursday, Chinese factory activity contracted last month for the first time since February 2020. Han’s statement raised concerns that already high commodity prices could increase further.

Widespread power outages have resulted in total or partial factory closures, impacting production and global supply chains in the country. Many factors contribute to this, but coal accounts for 60% of Asian giant’s electricity production.

In the recent months, Chinese authorities drove restrictions on energy consumption over a dozen provinces and regions. Bjarne Schieldrop, an analyst at SEB, says that this order suggests “that we are not on the verge of a cooling off date. Rather, it appears that things will get even crazier.”

“They’ll do whatever they can to win an auction for a cargo of coal” or liquefied natural gas, he added. According to Goldman Sachs and Nomura, China’s power problems will cause further disruptions in its production and supply chains due to the power shortage.

Major shutdowns

Many of the factories that supply multinationals such as Apple and Tesla have been forced to halt production. Employees in Dongguan, a sprawling factory city with millions of workers, had to rearrange their schedules.

“Yesterday, we had to work at night. And it’s the same today,” laments Mr. Cui, a handler in a shoe factory forced to limit production. “Of course we are not happy. But we’re adapting to the schedule,” he explains, while refusing to reveal his full name.

Coal futures in China hit a record high Thursday as a shortage of fuel and many factories were closed due to the National Day holiday.

For MetaNews.

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Jonathan Hobbs

Jonathan Hobbs is an Australian investor and author that trades on a variety of asset classes, including currencies, equities, and commodities. Jonathan’s experience as a macro trader leverages his unique writing style to combine important elements, such as technical analysis and news. The other elements that he brings into his unique writing styles are foundation analysis aimed at rational equilibrium values, evaluating the sizes and motivations of buyers and sellers, as well as identifying the needs of the buyers and sellers in the individual markets. Jonathan is committed to quality writing for new traders as well as veterans.

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