Overcapacity has compounded the impact of China’s slowing growth on these stalwarts of the old economy
CHINESE industrial profits show commodities producers ending 2024 at the bottom of the pile. This year’s looking no better.
Crude oil processors, steelmakers and coal miners were the country’s least profitable enterprises during a tough year for industry that could get worse if a trade war erupts with the US. Overcapacity has compounded the impact of China’s slowing growth on these stalwarts of the old economy, while shifts in energy policy have also weakened the outlook.
Although cheaper commodities are helping to reduce costs for industry, they are also entrenching the deflationary pressures affecting downstream businesses. China’s industrial profits as a whole dropped 3.3 per cent in 2024, according to data from the statistics bureau on Monday (Jan 27).
Oil refining, the worst-performing sector, faces shrinking demand for fuels such as petrol and diesel as the economy gets greener and transport becomes increasingly electrified. That’s likely to cap run rates and force some capacity to close. Refining was the only major industry to post a cumulative loss in 2024, which amounted to 46 billion yuan (S$8.5 billion), according to the statistics bureau.
Steel margins have been underwater for much of the year. Mills are churning out too much metal because new areas of consumption are failing to fully offset demand lost to the country’s protracted property crisis. Iron and steel profits fell 55 per cent in 2024, the bureau said, although some improvement was noted in December.
Coal miners are also overproducing relative to demand, but in this case they are being encouraged to do so by a government fixated on energy security. BMI is among those forecasting another increase in output this year, which is expected to rise 2 per cent from the record 4.76 billion tonnes mined in 2024, according to a note from the Fitch Group unit last week. Coal profits dropped 22 per cent last year.
Addressing overcapacity has become a priority for the authorities. An oil refining cap of one billion tonnes comes into play this year, while steel output has edged lower this decade after being tied to emissions, although it remains stubbornly above one billion tonnes. Other bloated sectors, including solar equipment makers and copper smelters, are attempting to enforce their own supply discipline. BLOOMBERG
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