China’s slump is battering its commodities sector, with profits from coal mining to metals production continuing to decline as the property crisis worsens and the economy slows.
The steel industry has been hardest hit, with profits at ferrous metals producers dropping 91% over the first seven months of the year, according to data from the National Bureau of Statistics on Sunday. Base metals producers saw profits drop by 37% and coal miners by 26%, outstripping the broader 16% slump in China’s industrial profitability.
The latest earnings reports paint a gloomy picture for companies rooted in the old economy. Sinopec, China’s top oil refiner, said first-half net income fell 19% due to the sluggish recovery. China Shenhua Energy Co., its biggest coal miner, saw net income fall 13% and said prices of the mainstay fuel may fall again in the second half, according to an exchange filing.
Better news may be on the horizon for metals firms linked to the energy transition. Goldman Sachs Group Inc. has flagged significant strength in China’s green copper consumption, with demand from electric vehicles and renewable power rising 74% over the year through July, according to a note from the bank. Jiangxi Copper Co. also said prices are likely to rise in its earnings release.
Coal, however, is likely to remain under pressure. Prices of the fuel, which underpin China’s industrial output, have dropped almost a third this year after Beijing ordered a massive increase in supply to support the reopening of the economy.
But demand has remained tepid and expectations of a strong rebound from Covid-era restrictions have failed to materialize, Fitch Solutions said in a note last week. Energy-intensive industries like ceramics, glass-making and steelmaking in particular have suffered significant losses given their dependence on the country’s flailing property market.
But the mining sector’s loss is the power industry’s gain, as generators take advantage of falling coal prices to return to profitability. The sector saw profits jump 51% in the year through July, according to the statistics bureau. That trend could continue in coming months, with Shenhua expecting electricity demand to grow faster in the second half of the year than it did in the first, according to the company’s filing.
Jiangxi Copper, which reported a 3% drop in first-half net income, said prices should rise in the second half to trade between 68,000 yuan and 75,000 yuan ($10,300) a ton due to a tight market. The country’s top producer cited Beijing’s policies to stabilize growth and the likely end to US rate hikes for its optimism. Copper on the Shanghai Futures Exchange last traded around 69,000 a ton.
The Week’s Diary
(All times Beijing unless noted.)
Monday, Aug. 28
- US Commerce Secretary Gina Raimondo visits China
- Sinopec earnings briefings, online at 12:15 and in HK at 15:00
- China Evergrande creditors vote on debt overhaul, 18:00
- China Council for International Cooperation on Environment and Development in Beijing, day 1
- EARNINGS: BYD
Tuesday, Aug. 29
- US Commerce Secretary Gina Raimondo visits China
- China Council for International Cooperation on Environment and Development in Beijing, day 2
- EARNINGS: Ganfeng Lithium, Gotion High-Tech, GEM, Trina Solar, GCL Tech, Kunlun Energy, Shandong Steel, Cosco Shipping
Wednesday, Aug. 30:
- US Commerce Secretary Gina Raimondo visits China
- China Council for International Cooperation on Environment and Development on Beijing, day 3
- CCTD’s weekly online briefing on Chinese coal, 15:00
- EARNINGS: Baosteel, Hesteel, Angang Steel, Maanshan Steel, Tianqi Lithium, Metallurgical Corp. of China, PetroChina, Longi Green, JA Solar, China Three Gorges, Yangtze Power, Ming Yang
Thursday, Aug. 31:
- China’s official PMIs for August, 09:30
- PetroChina earnings briefings, 16:00 in HK and 17:00 online
Friday, Sept. 1:
- Caixin’s China factory PMI for August, 09:45
- China weekly iron ore port stockpiles
- Shanghai exchange weekly commodities inventory, ~15:30
On the Wire
China has made a number of pledges recently to revive the economy’s recovery and improve the business environment as concerns about the growth outlook continue to mount.
Fortescue Metals Group Ltd. joined iron-ore mining peers in posting lower profits due to China’s economic downturn, while also announcing the sudden departure of its metals head.
After years of pent-up demand for leisure and business travel due to the ravages of Covid-19, millions of Chinese are taking to the skies again as the nation leads an aviation boom across Asia.
--With assistance from Winnie Zhu.
