China Drought Worst In Over 50 Years

Posted By on June 2, 2011

Heads up comments from the one and only….Art Cashin on the floor of The New York Stock Exchange.

China Drought Worsens, Possibly Putting Pinch On Profits, Populace And Maybe The Government – As we noted last week, new pressures appear to be accelerating in China.  Not the least of these is the worsening of the very severe drought that has beset much of the nation for several years now.

Here are some drought related developments garnered from sources such as Bloomberg, China Daily, the FT, Xinhau News Agency and others.  Confronted with the worst drought in 50 years, Chinese authorities have ordered the managers of the Three Gorges Dam (the world’s largest) to release 20% more water immediately.  It is a desperate attempt to increase the badly depleted water flow in the Yangtze River, which has become almost un-navigable for much of its nearly 4000 mile length.

The Yangtze is the Mississippi of China carrying ships and barges that move much of the nation’s goods.  Additionally, it is the source of irrigation for the majority of the rice paddies in China’s most fertile and productive agricultural provinces.  Lastly, it is a primary source of drinking water for millions upon millions of people along its route.

The numbers bear out the magnitude of the growing concern.  The water of the Yangtze traditionally irrigates over two-thirds of the nation’s rice fields.  There are fears that over 75% of the spring rice crop may already be lost.  Poyang Lake, China’s largest fresh water lake, is said to have shrunk by over 60%.  The loss of hydro-electric power caused by the diminished Yangtze may increase China’s oil demand by 300,000 barrels a day.

The falloff in hydro-electric power has already caused authorities to order brownouts at thousands of factories and facilities for one or two days each week.  To compensate, factory owners are said to be resorting to diesel generators for power during those brownouts.  That surge in diesel use will not only put upward pressure on crude prices but greatly exacerbate China’s air pollution problems.

The government is scrambling to address the power problem as witnessed in this Reuters report:

BEIJING (Reuters) – China has raised power prices for industrial, commercial and agricultural users in some regions by about 3 percent in an attempt to ease what threatens to be the worse power shortage in seven years in the world’s second-largest economy.

The power price rise, which excludes residential users, will add to inflationary pressures but revive profit margins at power producers.

That should prompt an increase in electricity supplies from loss-making power plants that had failed to keep up with rising demand. Higher prices should also discourage excess power consumption.

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