Congratulations if you managed to fill your car with petrol last week. The most urgent part of your personal energy crisis is over.
Unfortunately, Britain is now entering the chronic phase: we are part of a worldwide energy crunch that risks a Christmas lacking festive goods, at least those imported from China.
At home, household energy bills are rising steeply after the price cap was upped by 12pc at the end of last week, as global gas shortages drive market prices to new highs. Economists are predicting an even steeper rise next April.
But our gas and electric issues are a small part of pain being felt globally. Factories across China – the workshop of the world – are the latest victims. The country’s problems are twofold.
One is remarkably similar to the UK’s. British energy providers are in trouble because the prices they charge are capped as the cost of gas they purchase soars, leading to swathes of smaller suppliers closing. Similarly, China’s coal-fired power plants are caught between heavily regulated prices and rocketing coal costs. And just as still weather has deprived Britain of wind power, a drought in China has hit hydroelectric generation.
The second issue is that Beijing sets tough targets on energy intensity – the amount of power used per unit of output – as part of its environmental plans.
Booming demand for goods has sent Chinese factories working overtime, particularly in heavy industry such as aluminium. Power use surged and targets were missed. A mid-year central government examination pressured provinces that have pushed above targets to use less for the rest of the year – power rationing – after grading them by energy usage.
As a result, economists at Goldman Sachs have slashed their economic forecasts for the world’s second largest economy, predicting zero growth for the third quarter and a diminished expansion in the final months of the year.
Metals producers will face a 40pc production cut in “red” provinces, the investment bank estimates, falling to 20pc in “yellow” areas that haven’t missed their targets quite so badly.
The fall for chemicals producers will range from 10pc to 20pc, while others including textiles, paper and plastics makers can anticipate a drop of between 5pc and 10pc.
Impacts are not limited to heavy industry. Even power for electric car charging points and solar panel manufacturers are under threat, says Trina Chen, co-head of Greater China research at Goldman, in moves that are counterproductive when it comes to cleaning up the environment.
Robin Xing, economist at Morgan Stanley, predicts overall steel output will be down 9pc in the fourth quarter compared with the same period in 2020, while aluminium will fall 7pc and cement 29pc.
As the world’s workshop stutters, the rest of us are set to feel the effects – from our wallets to supply shortages.
“Anything that uses metals globally is going to be affected. Even if China doesn’t export to you directly, the price is determined by supply and demand so you cannot escape it,” says Craig Botham, chief China economist at Pantheon Macroeconomics.
China is by far the world’s biggest producer of steel, for instance, churning out almost 1bn tons in 2019, compared to India’s 111m tons in second place.
Ratings agency Standard and Poor’s has already cut its growth forecasts for Asia, citing China’s energy shortages as a key risk to even those diminished expectations. The country is crucial to the Asian manufacturing nexus, already struggling with a swathe of other issues.
Meanwhile, shipping is still reeling from Covid chaos only heightened by the delta wave, which has intermittently closed Chinese ports and trashed production in other manufacturing hubs such as Vietnam.
Shortages are already being felt around the world and are only expected to heighten as the year goes on. More than three-quarters of German manufacturers have reported bottlenecks and problems with core supplies, according to the Ifo Institute.
The institute’s Klaus Wohlrabe warns conditions are getting “tighter and tighter”, leaving companies torn between placing orders now – when it is hard and expensive to get materials – or taking a wait-and-see approach.
It isn’t just steel and copper but materials for plastics, including packaging and toys, are also in particularly short supply.
British businesses and households can expect to feel the impact via consumer goods such as toys and electronics, as well as major purchases that use metals and microchips, including cars and white goods. The construction industry also relies on steel imports.
John Glen, economist at the Chartered Institute of Procurement and Supply, says demand could spike as importers snap up any available steel before shortages take hold – rather like drivers queuing for petrol.
“If you take a dominant player out of the market, it will have a significant impact. Other players will seek to increase capacity, but that is not something that can be done easily or quickly in iron and steel,” he says.
Even if new suppliers can be found in different countries, or if China ramps up production, the shipping industry is snarled up, making it hard to get goods cheaply or promptly.
Materials for buildings have already spiked in price in the UK. Data from the Construction Products Association shows fabricated structural steel is up almost two-thirds in the past year, with steel bars to reinforce concrete close behind.
Noble Francis, the industry group’s economics director, says “the availability of most imports is easing, as is cost inflation”.
But it could be about to strike again, just as soon as China’s stoppages hit supplies arriving in Britain.
“It tends to take around 30 to 40 days on a cargo ship to come over,” he says. “We have not seen the full impact yet but it will be coming through in the next few months, at a time when we have already seen quite rapid price inflation on goods coming from China.”
We can look forward to a wave of new pressures in the run up to Christmas, feeding stagflation fears of rising prices and stagnant GDP.
“China sneezes and global supply chains catch a cold,” says Glen.
“That is what we are in danger of seeing now. The impact has the potential to be quite severe.”