China industrial profits boom as commodity prices rally
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Industrial profits from firms in China surged almost 32 per cent in the first two months of 2017, marking the fastest pace in almost six years, as commodities including coal and iron ore grew higher.
According to figures from the National Bureau of Statistics, total industrial profits over the first two months reached 1.01 trillion yuan ($147 billion). This increase was mainly prompted by faster growth in the price of coal, steel and crude oil, as well as a general increase in economic activity.
The initial pace of profit grew sharply from 2.3 per cent in December, marking the fastest rise on a year-to-date basis since January to March 2011 profits increased by 32 per cent. Stronger earnings are expected to continue as the year progresses, potentially giving a further boost to fixed-asset investment and giving China's industries greater cash flow, reportedly a top government priority.
Industrial profits alone rose by 8.5 per cent in 2016 thanks to a sharp increase in the price of coal and raw materials including iron ore, which have been used to fuel China's construction boom.
Many of the country's industrial businesses are also likely to benefit from fixed-asset investment, which beat predictions in the first two months of the year thanks, in part, to a 27.3 per cent increase in infrastructure spending.
When it comes to specific companies, data revealed similar levels of success. For example, state-owned China Petroleum and Chemical Corp (Sinopec), Asia's largest oil refiner, stated that it expects a rise of around 150 per cent in first-quarter profits thanks to the international boost in crude prices. Sinopec also plans to further boost capital expenditure to 110.2 billion yuan in 2017, an increase of 44 percent from last year.
Furthermore, statistics show that producer prices rose at the fastest pace since 2008 in February following stronger demand and government cuts. However, many economists have suggested that these price gains could soon begin to slow.
"The base effects are not going to be as flattering in coming quarters. We're going to see a decline in profit growth and producer price inflation from now onwards," said Julian Evans-Pritchard, an economist at Capital Economics in Singapore. "We shouldn't get too excited about some of these growth rates."