Chinese language Commodities Corporations Bear the Brunt of a Slowing Economic system

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(Bloomberg) — Chinese industrial profits show commodities producers ending 2024 at the bottom of the pile. This year’s looking no better.

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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.

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Although cheaper commodities are helping to reduce costs for industry, they’re also entrenching the deflationary pressures affecting downstream businesses. China’s industrial profits as a whole dropped 3.3% in 2024, according to data from the statistics bureau on Monday.

Oil refining, the worst-performing sector, faces shrinking demand for fuels like gasoline 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 ($6.3 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% 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’re 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% from the record 4.76 billion tons mined in 2024, according to a note from the Fitch Group unit last week. Coal profits dropped 22% last year.

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Addressing overcapacity has become a priority for the authorities. An oil refining cap of 1 billion tons comes into play this year, while steel output has edged lower this decade after being tied to emissions, although it remains stubbornly above 1 billion tons. Other bloated sectors, including solar equipment makers and copper smelters, are attempting to enforce their own supply discipline.

On the Wire

China’s factory activity unexpectedly contracted in January as production wound down ahead of China’s eight-day Lunar New Year holiday. 

China’s carbon emissions grew slightly last year as new clean power installations couldn’t keep pace with a surge in energy demand, according to the Centre for Research on Energy and Clean Air.

China’s electricity demand is becoming a key focal point in the global fight against climate change.

China’s government is turning to the country’s citizens to help pull the world’s second-biggest economy out of a rut. If only it were so simple.

China’s government failed to meet its spending target for last year, as the housing market slump left local governments strapped for cash and unable to meet funding commitments.

This Week’s Diary

(All times Beijing unless noted.)

Monday, Jan. 27:

• China’s industrial profits for December, 09:30
• China’s official PMIs for January, 09:30
• China’s monthly medium-term lending rate

Tuesday, Jan. 28:

• Mainland China’s lunar holiday begins and runs through Feb. 4

Wednesday, Jan. 29:

• Hong Kong is on holiday through Jan. 31

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