TSM) Hsinchu hometown faces possible water rationing on June 1 as Taiwan’s resource scarcity worsens

Hsinchu from Taiwan – which is home to TSMC (TPE: 2330) (NYSE: TSM) and the nation’s largest factories – will launch the highest level of water rationing from June 1 if there has not been at least 100 mm of rain at the end of May, his city government said wednesday.

The city’s household and business water supply will be open for five days and shut down for two days as part of the “red alert” level of water restrictions. The city will be divided into two districts which will alternate the water supply. When their household or business is without water, residents can go to a city-run station to get water. This water comes from a desalination plant or from parts of Taiwan that have a lot of it.

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Water data released by the government shows that the reservoirs serving Hsinchu are at 10%, 2.7%, 7.6% and 3.3%, respectively.

In the announcement, the city stressed that the semiconductor industry will not be without water and will be supplied 24 hours a day. TSMC and other manufacturers like UMC (TPE: 2303) already import water via tankers from Taipei, northern Taiwan, which does not face a similar shortage. TSMC reportedly delivered more than 100 tankers per day, bringing the company 20 tonnes of water.

TSMC has made it clear that the tightening of water restrictions in the city will have no impact on operations with no expected impact on production. In one sustainability report, the company says its average recycling rate of water used in production processes reached 86.7% in 2019 and further improvements are expected.

No water, not a lot of power

In addition to the drought, Taiwan faces an electricity shortage with DC power failures hit the island. Strong demand from an unusually hot May, natural gas power plants that remain offline, and a nuclear power plant that is only partially online, mean the grid is fragile. When a “accidentAt a major coal-fired power station earlier this month, the local power company, Taipower, was forced to engage in power outages around the island to preserve the electricity supply of Hsinchu’s semiconductor operations.

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While there is normally a large reserve in the form of hydroelectric dams to cope with shortages, the prolonged drought means that this reserve has dried up.

Taipei-based energy journalist Tim Ferry on his blog Taiwan Energy Observer, reports that this energy crisis could soon end with the partial restart of one of the country’s nuclear power plants, and expected torrential rains bringing the possibility of a return of hydropower. But from now on, reserve margins remain at 6.01%, meaning that a sudden spike in demand or a loss of capacity would mean more outages.

“Unfortunately, reserve margins have stubbornly stuck at Yellow at 6.01%. Below 6%, Taiwan’s power supply would be threatened with shortage, ”Ferry wrote.

Taiwan resource crunch and future TSMC share price

Although the demand for semiconductors remains virtually endless, the U.S. auto industry must sidewalk production Due to a chip shortage, investors should be prepared to push TSMC stock to the stratosphere. After all, TSMC is indeed the tie that binds it all. Semiconductors are in everything these days, and no other factory has the capacity or expertise to meet the demand.

But investors feel TSMC is at a limit, with its plans to 3 nm and 2 nm facilities already on the table and now with the threat of water scarcity becoming a systemic problem, there is not much room for growth. Data shortqueeze shows that there is only a short interest rate of 1.3%, so shorts are not preparing for a big drop. But investors aren’t preparing for a big growth story either. For options expiring in mid-October, open interest (for TSMC’s US listing) hovers around $ 120 to $ 140. Options that expire early next year have open interest built around the same price range. Certainly not bearish, but only moderately bullish as implied volatility is below its all-time highs.

If you think that open interest on strike prices is indicative of a price prediction, it means investors view the company’s growth as modest. Certainly, that’s a good thing if TSMC is to be seen as a top-notch stock, as stability is key. But it also shows that the growth of the past decade is unlikely to repeat itself, for several reasons, including the lack of electricity and water on TSMC’s home island of Taiwan.

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