Commodities producers are China’s worst-performing industrial firms, as state-owned enterprises rooted in the old economy bear the brunt of a sluggish economy.
Crude oil processors, coal miners and steelmakers were among the few businesses to show falling profitability or outright losses in the first five months of 2024, according to the National Bureau of Statistics on Thursday. Oil refiners posted the most dramatic slump, with profits declining 178% over the year to date compared to the same period in 2023. Coal firms fell 32%. Industrial profits as a whole rose 3.4%.
Blame electric vehicles, but China’s decades-long boom in oil processing is likely to stagnate, or even reverse this year. That would be the first drop in data going back to 2004, excluding a Covid-hit 2022. Beijing has recognized the limits to growth and will impose a 1-billion-ton-a-year capacity cap on refiners by 2025.
Coal producers, meanwhile, are the victim of a slump in prices engineered by the government to prevent the power outages that have crippled the economy in recent years. Running into peak summer demand season, the nation has made sure it has a surfeit of coal. Worse could be around the corner for miners. China’s consumption of the dirtiest fossil fuel is expected to peak in 2025 to meet President Xi Jinping’s climate goals.
Steel mills are struggling to offset the impact of the protracted crisis in the housing market, historically their biggest source of consumption. Although output picked up in May, “demand remains soft, with crude steel exports high, inventories lifting and steel margins under pressure,” UBS Group AG said in a note this week. ADVERTISEMENT: CONTINUE READING BELOW Steel prices should rise if the government enforces its annual production cap linked to emissions.