From coal to cars, Chinese floods entangle supply chains

An aerial view shows rescuers evacuating residents on a flooded road following heavy rains in Zhengzhou, Henan province, China on July 22, 2021. Photo taken with a drone. REUTERS / Aly Song / File Photo

Register now for FREE and unlimited access to Reuters.com

Register

BEIJING, July 22 (Reuters) – Floods that flood central China and submerge swathes of a major economic and transport hub are threatening supply chains of goods from cars and electronics to pigs, with peanuts and charcoal.

Electricity had been partially restored and some trains and flights were operating on Thursday, but analysts said the disruptions could last for several days, pushing up prices and slowing business in densely populated Henan and neighboring provinces.

Zhengzhou, the capital of Henan with 12 million people, 650 km (400 miles) southwest of Beijing, is the junction of major north-south and east-west high-speed rail lines, with connections to most major Chinese cities from one of the largest in Asia. stations.

Register now for FREE and unlimited access to Reuters.com

Register

The transportation of coal, which generates most of China’s electricity, from major mining regions like Inner Mongolia and Shanxi via Zhengzhou to central and eastern China has been “severely affected,” said the state planner Wednesday, as power plants scramble for fuel to meet peak summer demand.

“As Zhengzhou is a national transportation hub, and Henan Province is a major producer of grains, raw materials and some manufactured products like iPhones, we believe that rainfall and flooding will have a big impact on the business activity and short-term inflation, ”Nomura analysts wrote.

Foxconn (2317.TW), which manufactures iPhones for Apple (AAPL.O) at a factory in Zhengzhou, said there had been no direct impact on its main facility.

“We are monitoring the situation closely and will provide all appropriate updates,” he said.

However, a person familiar with the matter said that output at a small Foxconn factory that mainly manufactures office connectors in the Zhongmu section of Zhengzhou was affected after some equipment was damaged in the floods.

The floods spilled into subway lines and washed away thousands of cars, killing at least 33 people, cutting road links and cutting off electricity and mobile phone service in many parts of the region.

SLOWED PLANTS, IMPRESSIVE BREAKFASTS

On a highway crowded with stranded trucks, residents handed out sticks of fried dough to drivers, social media footage showed.

“We’ve all been stuck here all day and all night,” one driver said while having breakfast.

China’s largest automaker, SAIC Motor (600104.SS), warned of the short-term impact on logistics at its Zhengzhou plant, while Japan’s Nissan (7201.T) said production in its factory had been suspended.

The rain caused pigs to be transported to slaughterhouses in one of the country’s main pork-producing regions, a pig trader said, and Nomura said food prices in Henan, home to nearly 100 million people, and neighboring provinces could increase in the coming weeks.

Flooding could also have a longer-term impact on agricultural production, as rainwater can spread disease on farms.

Heavy rains in the south last year were blamed for a resurgence of African swine fever, which is deadly to pigs.

With more than 200,000 hectares of Henan farmland affected by the flooding, analysts at SDIC Essence Futures have warned of the impact on the ripening peanut crop. Henan produces about a quarter of China’s peanuts, a major source of cooking oil.

But the floods are also expected to trigger the release of pent-up consumer and investment demand, Nomura analysts said, especially for cars and infrastructure.

Data from 11 insurers including Ping An Insurance Group (601318.SS), showed they had received claims for nearly 32,000 damaged cars in Henan on Thursday.

The Development Bank of China said on Wednesday that it will provide 1.86 billion yuan in emergency loans to Zhengzhou Metro Group and other local government enterprises to strengthen drainage and rebuild foundations.

($ 1 = 6.4658 Chinese renminbi yuan)

Register now for FREE and unlimited access to Reuters.com

Register

Reporting by Cheng Leng, Dominique Patton, Hallie Gu and Muyu Xu in Beijing and Yi-Mou Lee in Taipei; edited by Robert Birsel

Our standards: Thomson Reuters Trust Principles.

Comments are closed.