China's 2016 industrial profits rise most in 3 years on commodities recovery

[BEIJING] Profits for China's industrial firms rose 8.5 per cent in 2016, the most in three years, as a construction boom fuelled a months-long rally in prices of building materials from steel to cement, giving companies more flexibility to start chipping away at a mountain of debt.

Strong profit growth last year suggests there may be a solid pick-up in industrial investment in 2017, though many analysts still expect China's overall economic growth to cool to around 6.5 per cent this year from 6.7 per cent in 2016.

Industrial profits fell 2.3 per cent in 2015.

Profits in December rose 2.3 per cent from a year earlier to 844.4 billion yuan (S$173.40 billion), the National Bureau of Statistics (NBS) said on Thursday, easing from growth of 14.5 per cent in November.

But the earnings recovery remained uneven across the industrial sector, with coal miners and processors such as steel mills and oil refiners continuing to see sharper gains than other firms.

Profits in the coal mining sector surged 223.6 per cent in 2016, while those for iron and steel production and processing companies rose 232.3 per cent.

Baoshan Iron and Steel (Baosteel) said last week that it expected its net profit to rise 770 per cent in 2016 from a year earlier.

Baosteel Group is taking over rival Wuhan Steel to create the world's second-largest steelmaker, in the government's biggest effort yet to consolidate its fragmented steel industry.

Profits at China's state-owned firms rose 1.7 per cent in 2016 from a year earlier, compared with a 2.8 per cent rise in the first 11 months of the year, the Ministry of Finance said earlier on Thursday.

Total profits at state firms stood at 2.3 trillion yuan for the year, while revenue rose 2.6 per cent to 45.9 trillion yuan.

State firms' total liabilities rose 10 per cent year-on-year to 87 trillion yuan at the end of December, it said.

COMMODITY PRICES RALLY

China's producer prices surged the most in more than five years in December, bolstered by soaring prices of coal and raw materials and contributing to a reflationary pulse seen across the global manufacturing sector.

Government efforts to force bloated "smokestack" industries to shut excess and inefficient capacity also helped feed the rally by reducing supply.

But some analysts worry the strong price gains may have been fuelled by growing speculation in China's commodity futures markets, adding to the risk of asset bubbles in the economy which the central bank has vowed to prevent in 2017.

Chinese futures prices for steel reinforcing bars used in construction have risen more than 10 per cent so far this month, on top of a gain of more than 60 per cent in 2016.

REUTERS