China's power-hungry commodity producers are in Beijing's firing line, but the government's efforts to stave off a full-blown energy crisis are also fuelling rallies in the prices of everything from fertiliser to silicon.
Production of metals from aluminium to steel has been spluttering for months as power curbs have intensified across key industrial provinces. Now factories producing high-end goods are starting to feel the pinch too, creating burgeoning risks to the nation's economic growth. What's worse, the energy crunch is spreading to a sector that alarms Beijing the most: food.
Here's how China's efforts to avert an energy crunch are upending industrial commodities markets:
Ensuring that China's 1.4 billion people have enough to eat is a top national priority, and yet the power shortage has forced soya bean processors in the northern regions to shut and sent fertiliser prices soaring.
Some soya plants operated by Louis Dreyfus, Bunge and Wilmar International's Yihai Kerry unit are among those affected. So far, the impact has been cushioned by weak demand for soya bean meal - used in animal feed - due to a slump in pork prices. However, if plants remain halted, it could delay soya bean purchases by the largest buyer and crimp United States exports.
There's also concern that China's policy moves could reduce the operating rates of corn processors, which make products like starch and syrup, Chinese brokerage Huatai Futures said in a note.
Given the importance of fertilisers to overall food security, the rally in prices has attracted increasing scrutiny from Beijing. This week, a Chinese state-owned firm said it had been fined for raising prices of fertiliser products, following warnings earlier this year against hoarding and price gouging.
The power crunch in the top country consuming base metals has triggered production losses at smelters and fabricators in the past few months, hitting both supply and demand for everything from copper to tin. So far, the biggest impact has been felt at energy-intensive aluminium plants.
That has choked off aluminium supply - just under three million tonnes of annual smelting capacity, according to Goldman Sachs - fuelling the metal's rally to the highest level since 2008 earlier this month. While that is already about 8 per cent of China's total capacity, the prospect of further power rationing as the country braces itself for higher winter demand will keep the sector under pressure.
Steel mills, the main targets of China's campaign to cut emissions, have also been hit by electricity curbs. That has led to a wild ride for iron ore - the main steelmaking raw material - in recent months, with prices falling by half from a peak in May. More than 80 domestic steel mills have suspended production for maintenance this month, according to researcher Mysteel.
Nickel rose to the highest level since 2014 earlier this month, but concerns over China's power crunch have clouded the outlook for stainless steel consumption. In Fujian province, China's key stainless steelmaking hub, some mills have started to suspend production, with national monthly output set to fall by more than half a million tonnes, according to Mysteel.
The impact on some minor commodity markets has been even more stark, with silicon prices surging to record highs this month after China imposed curbs on supply. The quadrupling in silicon prices this year threatens to heap further misery on aluminium producers, which rely on it as an alloying ingredient in specialised value-added products.
The supply curbs could also significantly affect prices for polysilicon, a key input for solar manufacturers, according to Chinese research group Shanghai Metal Markets.
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