China April industrial profit growth rebounds to six-month high

Employees working at a factory in Huaibei in China's eastern Anhui province. (AFP)
Updated 27 May 2018
0

China April industrial profit growth rebounds to six-month high

  • Employees working at a factory in Huaibei in China's eastern Anhui province. (AFP)
  • Higher factory prices and stronger demand help rebound

BEIJING: Profits earned by Chinese industrial firms in April rose at their fastest pace in six months, data from the National Bureau of Statistics (NBS) showed on Sunday, as factories benefited from higher prices and strong demand.

Profits in April rose 21.9 percent year-on-year to 576 billion yuan ($90.14 billion), the quickest since October, bringing gains for the first four months of 2018 to 15 percent.

The data suggests China’s industrial sector is still seeing solid growth momentum despite curbs on pollution and rocky trade relations with the US.

Last month’s rebound was helped by lower comparison figures for April 2017, higher factory prices and stronger demand, He Ping, head of NBS’ industrial division, said in a statement.

It was a significant improvement over March’s 3.1 percent growth that was the slowest in over a year and which government officials had blamed on the timing of the Lunar New Year holiday.

The higher April data should help ease concerns of slowing momentum in China’s economy as the country implements tougher pollution controls on “smokestack” industries and cash-strapped regional governments cut back on big investment projects, curbing demand for building materials.

Profit growth for Chinese industrial firms has softened from last year’s strong pace as factory gate price gains weaken. In the first four months of 2017, profits rose 24.4 percent.

China’s producer price inflation picked up to 3.4 percent in April from March but was much lower than 6.4 percent in the year-ago period.

Weaker profit growth suggests companies may be reluctant to invest and hire new staff, while making it harder for debt-laden firms to service their debt, especially state-owned enterprises that account for the bulk of the country’s high leverage.

A Reuters analysis showed that debt growth for Chinese companies has slowed to the lowest rate in more than a decade, but companies have also seen profit margins squeezed to their lowest level in two years.

April economic data had shown signs of slowing momentum as investment growth touched a near 20-year low and retail sales growth weakened.

Despite stronger-than-expected first-quarter economic growth, economists polled by Reuters still expect a gradual slowdown to around 6.5 percent this year from 6.9 percent in 2017, as rising borrowing costs weigh on consumption and investment.

Beijing continues to call for tighter controls on risky investments and speculation in the property sector, but does not want to cut off funding to firms in the “real economy” such as manufacturing firms that are a key source of jobs.

There have also been signs that policymakers have moved to a slighter looser stance as they look to ensure growth doesn’t slow too much, while also keeping financial risks under control.

No industrial sectors recorded year-on-year losses over January to April, the data showed.

But earnings in the computer and telecommunications sector fell 5.3 percent over the four months, though that was a slight improvement from an 11 percent decline in the first quarter.

Liabilities of industrial firms rose 6.1 percent year-on-year as of end-April, according to the statistics bureau.

Profits at China’s state-owned firms rose 26.2 percent to 627 billion yuan for Jan-April, compared with a 23.1 percent rise in the first quarter.


Oil up on OPEC uncertainty regarding production levels

Updated 22 June 2018
0

Oil up on OPEC uncertainty regarding production levels

  • Saudi Arabia and Russia are in favor of raising output. Other OPEC-members including Iran have opposed this, resulting in a flurry of backdoor diplomacy ahead of the meeting
  • Phillip Futures said in a note that it expected “an approximate 300,000–600,000 barrels per day (bpd) hike by Saudi Arabia and Russia collectively”

SINGAPORE: Oil prices rose by around 1 percent on Friday, lifted by uncertainty over whether OPEC would manage to agree a production increase at a meeting in Vienna later in the day.
Brent crude oil futures were at $73.78 per barrel at 0502 GMT, up 73 cents, or 1 percent, from their last close.
US West Texas Intermediate (WTI) crude futures were at $66.26 a barrel, up 72 cents, or 1.1 percent.
The Organization of the Petroleum Exporting Countries (OPEC), a producer group with top exporter Saudi Arabia as the de facto head, is meeting together with non-OPEC members including No.1 producer Russia at its headquarters in the Austrian capital to discuss output policy.
The group started withholding supply in 2017 to prop up prices. This year, amid strong demand, the market has tightened significantly, pushing up crude prices and triggering calls by consumers to increase supplies.
Saudi Arabia and Russia are in favor of raising output. Other OPEC-members including Iran have opposed this, resulting in a flurry of backdoor diplomacy ahead of the meeting.
“The actual decision by OPEC and its partners — which may not actually become apparent until Saturday — is the big one traders are watching,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
Phillip Futures, another brokerage, said in a note that it expected “an approximate 300,000–600,000 barrels per day (bpd) hike by Saudi Arabia and Russia collectively.”
US investment bank Jefferies said an increase in “the range of 450-750,000 bpd seems the most likely outcome” of the meeting, driven largely by Russia and Gulf OPEC members Saudi Arabia, the United Arab Emirates and Kuwait.
Jefferies said these increases “would essentially offset Venezuelan declines and falling Iranian exports,” but the bank warned that global “spare capacity could fall globally to around 2 percent of demand – its lowest level since at least 1984.”
That would leave markets prone to supply shortages and price spikes in case of large, unforeseen disruptions.
The other big uncertainty is potential Chinese tariffs on US crude imports that Beijing may impose in an escalating trade dispute between the United States on one side and China, the European Union and India on the other.
Asian shares hit a six-month low on Friday as tariffs and the US-China trade battle start taking their economic toll.
Should the 25 percent duty on US crude imports be implemented by Beijing, American oil would become uncompetitive in China, forcing it to seek buyers elsewhere.
Chinese buyers are already starting to scale back orders, with a drop in supplies expected from September.
“If China’s import demand dries up, more than 300,000 bpd of US crude will have to find a new destination,” energy consultancy FGE said.
“This will certainly depress US Gulf Coast prices,” it said.