Heavy Rains in China Threaten Crops, Mining and Oil Drilling

(Bloomberg) -- Chinese commodities traders are bracing for further disruptions to supply as torrential rains flood farmland and mines and even hamper the production of oil.

Some northern regions are experiencing the worst downpour in over half a century as climate change supercharges extreme weather events, including scorching temperatures in the south of the country. More rains are expected, while typhoon season, which runs through September, is likely to bring a fresh set of challenges to coastal provinces.

Prices of vegetables farmed in the north rose sharply last month after floods devastated farmland and hindered the harvesting, storage and transport of crops, leaving produce to rot in the fields or quickly perish, according to a report from one of Beijing’s main wholesale markets.

A basket of 28 vegetables collated by the farm ministry has surged 30% since the start of July, while a separate index tracked by the Ministry of Commerce is at its highest level for this time of year since at least 2018. The gains helped raise consumer inflation by more than expected last month. The weather bureau is forecasting further heavy rains in the north and northeast over the next ten days, threatening not just vegetables but also staple grains like corn and rice.

Beijing has allocated funds to local governments to drain flooded fields and apply fertilizers, among other emergency measures, to help production recover. Total flood relief since June this year has amounted to 1.33 billion yuan ($185 million), nearly double last year’s tally, according to Huachuang Securities Co.

Some coal producers in the northern mining hubs of Inner Mongolia and Shaanxi have also halted operations due to the downpour, although the market impact has so far been limited. Stockpiles are ample because of abundant imports of the fuel and subdued industrial consumption, although the heat is making greater demands on air conditioning.

China’s oil drilling hub in Liaoning province, northeast of Beijing, has seen the heaviest rains since 1951, which has affected the output of at least 80 wells at the Liaohe oil field operated by PetroChina Co., according to the company.

On the Wire

Iron ore fluctuated around $100 a ton ahead of data this week that’ll shed light on Chinese steel output as mills in the biggest market battle slumping product prices and challenged domestic demand.

A subsidiary of Chinese copper giant Jiangxi Copper halted production at part of its Shandong plant after an accident caused three deaths and injured several others.

Jefferies has initiated coverage of Chalco and Hongqiao shares with buy ratings, expecting the companies to benefit from a positive aluminum price outlook. Morgan Stanley lowered its price targets for some Chinese battery component maker stocks, as it sees “no upside” for the sector in the near term while oversupply issues linger.

This Week’s Diary

(All times Beijing unless noted.)

Tuesday, Aug. 13:

Wednesday, Aug. 14:

Thursday, Aug. 15:

Friday, Aug. 16:

--With assistance from Kathy Chen, Ocean Hou and Dan Murtaugh.

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