Themistocles
Well-Known Member
I have checked this story with multiple different reporting agencies. Seems to be valid. It appears that the electricity shortage in China is impacting Chinese output of Magnesium and that global and U.S. aluminum suppliers are warning that if the shortages continue they will not be able to meet CY22 orders....how far they will be below requirements I have not yet found.
A little background, if anyone cares to read it. China has purposely grabbed markets on things like this (rare earths is another). They use government subsidies (of some form) to produce at or below cost. The result is that companies in other countries can't compete unless their own governments step in to help. In a state like China that is easy, in the U.S. or Europe for example it is much much less easy for the government subsidize a company...though their are certainly ways to do it. In the end most non-China companies just fold because buyers go to the cheapest source and that source is China. This exactly what happened with rare earths (U.S. used to be one the top producers in the world...we now produce almost none, despite having large deposits.) Looks like what likely happened with magnesium.
This gives China lots of leverage. They used that leverage over rare earths a few years ago when they got in a dispute with Japan...just about shutdown a few major Japanese industries. While the slow down of production may be totally a byproduct of poor electrical planning and bad luck/timing, I wouldn't put it past China to slow down production of some things more than others in order to send a message. As the situation with Taiwan heats up and our dispute with China deepens, a few sharp messages about how much we depend on China might seem like a good idea to Chinese policy makers.
I personally don't see things improving real quickly, and would be far from surprised if they got worse, maybe substantially worse. The lack of fab (chip foundry) capacity in the U.S. is another one that could be very painful. In the end we need to be reshoring many of these industries or looking for partners in Canada, South America, or Europe...partners we can count on and we need to be ok with providing long-term market protection for these industries. Because without that China can just drop prices and kill the market again, causing everyone else to go out of business. As long as that situation exists, even if there is a short term demand, it doesn't make sense to invest substantial money into domestic / non-Chinese capacity.
Bottom-line, this isn't the first and likely wont be the last issue like this...return to your seats, stow your luggage, and buckle up, could be a bumpy ride.
A little background, if anyone cares to read it. China has purposely grabbed markets on things like this (rare earths is another). They use government subsidies (of some form) to produce at or below cost. The result is that companies in other countries can't compete unless their own governments step in to help. In a state like China that is easy, in the U.S. or Europe for example it is much much less easy for the government subsidize a company...though their are certainly ways to do it. In the end most non-China companies just fold because buyers go to the cheapest source and that source is China. This exactly what happened with rare earths (U.S. used to be one the top producers in the world...we now produce almost none, despite having large deposits.) Looks like what likely happened with magnesium.
This gives China lots of leverage. They used that leverage over rare earths a few years ago when they got in a dispute with Japan...just about shutdown a few major Japanese industries. While the slow down of production may be totally a byproduct of poor electrical planning and bad luck/timing, I wouldn't put it past China to slow down production of some things more than others in order to send a message. As the situation with Taiwan heats up and our dispute with China deepens, a few sharp messages about how much we depend on China might seem like a good idea to Chinese policy makers.
I personally don't see things improving real quickly, and would be far from surprised if they got worse, maybe substantially worse. The lack of fab (chip foundry) capacity in the U.S. is another one that could be very painful. In the end we need to be reshoring many of these industries or looking for partners in Canada, South America, or Europe...partners we can count on and we need to be ok with providing long-term market protection for these industries. Because without that China can just drop prices and kill the market again, causing everyone else to go out of business. As long as that situation exists, even if there is a short term demand, it doesn't make sense to invest substantial money into domestic / non-Chinese capacity.
Bottom-line, this isn't the first and likely wont be the last issue like this...return to your seats, stow your luggage, and buckle up, could be a bumpy ride.
Sponsored