Taiwan faces worst drought in 56 years

Following months of low rainfall and no typhoons making landfall last year, Taiwanese President Tsai Ing-wen has urged people to save water and brace for shortages as the island faces drought.

Tsai said in a Facebook post over the weekend that Taiwan went without a typhoon in 2020 and will see the worst water scarcity in 56 years. Typhoons typically produce huge amounts of rainfall. She said that in order to deal with the drought, the government established an emergency response centre, reports CNBC news.

Tsai went on to say that the government is keeping an eye on water conditions around the island and will take action to ensure that factories and households have a steady supply of water.

According to the Taipei Times, the island tightened nationwide water restrictions last month and mobilised emergency water services, including a desalination plant in Hsinchu County, as officials expect the dry season to last until May.

A military transport aircraft was dispatched to carry out cloud seeding over the Shimen reservoir in the north, which is one of Taiwan's main water catchment areas, according to Tsai's post. According to the Water Resources Agency, the reservoir is currently at 49.13 percent storage capacity. Other reservoirs on the island, such as Te-Chi and Tsengwen, are also at dangerously low levels, with Te-Chi at 10.19 percent storage and Tsengwen at 15.22 percent.

Taiwan's industries are bracing for potential disruption due to the water shortage.

Chipmakers have reportedly been buying truckloads of water for their foundries in preparation for meeting future water demand. Reuters reported last month that the Taiwan Semiconductor Manufacturing Co (TSMC), the world's largest contract chipmaker, was ordering small amounts of water as a "pressure test." It told the news wire that it had not yet seen any impact on its production.

If the water shortage disrupts Taiwan's semiconductor sector, it could potentially have global ramifications as the industry faces a chips supply crunch due to a spike in demand for consumer electronics like smartphones, tablets and PCs last year.

The chip shortage is particularly prominent in the auto industry where carmakers are expected to lose billions of dollars in earnings this year. Semiconductors are crucial components for cars in areas like infotainment systems and more conventional parts such as steering and brakes. Carmakers expect to sell fewer cars due to the supply crunch.

Still, the current water scarcity has not had any major impact on production in Taiwan's semiconductor industry, according to Gokul Hariharan, managing director and co-head of Asia technology, media and telecom research at JPMorgan.

Hariharan, who has extensively covered the semiconductor space in Taiwan, explained that a water shortage around the second quarter of the year is a common occurrence as it coincides with firms ramping up chip production. Seasonal rain and replenishment of reservoirs usually happen in late Q2 or in the summer during Q3, he told CNBC.

"I would say it doesn't seem like companies are going to have to stop production as things stand, they are running at about 100% utilization right now and I think we're not really looking at huge capacity expansion this year," he said. That implies the amount of water that semiconductor firms consume during their production process will not drastically increase in the near term.

While the sector is unlikely to see a production disruption per se, Hariharan said that supply conditions will remain tight for some time. "There will be some degree of new measures being instituted by companies, in terms of how much water recycling they need to do," Hariharan said.

Last week, Taiwan's Ministry of Economic Affairs head, Wang Mei-hua, said that the island's chipmakers are already producing at full capacity to meet global demand.