China's Oct industrial profits surge on boost from higher commodities

[BEIJING] Profits at China's industrial firms continued to grow at a robust pace last month despite a slight cooling from a sizzling September as companies benefit from strong commodities prices, with mining and heavy industry contributing the biggest gains.

Industrial profits in October rose 25.1 per cent from a year earlier to 745.4 billion yuan (S$152.1 billion), slowing from a 27.7 per cent jump in September, the National Bureau of Statistics (NBS) said on Monday.

Despite the modest slowdown, October's growth rate was still the second-highest for a single month this year. The data covers large companies with annual revenue exceeding 20 million yuan from their main businesses.

More than half of the increase in profits in October came from mining, iron and steel smelting and processing, chemicals, and oil and natural gas extraction, He Ping of the statistics bureau said in an accompanying statement.

He said lower costs helped lift profits, with operating margins rising year-on-year to 6.24 per cent.

China's industrial sector has been boosted by a year-long, government-led construction spree, which helped lift demand and prices for building materials, especially over the first half of the year.

Prices of industrial commodities have also been resilient despite a tightening in financial markets, as closure of polluting plants and factories have fuelled fears of supply shortages in the winter, lifting prices of finished goods including steel and copper products.

But factory activity has cooled in the past few months as Beijing extended a crackdown on financial risks, which has increased borrowing costs, while an ongoing government campaign against air pollution has shut many factories and mines.

These factors have started to drag on the world's second-biggest economy, which has defied market expectations with growth of 6.9 per cent in the first nine months of the year, supported by the construction boom and robust exports.

Curbs on the property market to fend off speculators are also expected to persist, putting a lid on a range of sectors including construction.

In the first 10 months, the firms notched up profits of 6.25 trillion yuan, an increase of 23.3 per cent from a year earlier, compared with a 22.8 per cent gain in January-September.

Mining industry profits soared 405.4 per cent from a year earlier in January-October while manufacturing profits were up 20.1 per cent.

Profits earned by China's state-owned firms rose 48.7 per cent to 1.41 trillion yuan in the first 10 months, picking up from a 47.6 per cent increase in January-September.

Analysts say higher borrowing costs mean earnings and economic growth will come under more pressure in the year ahead.

The weighted average lending rate for non-financial firms, a key indicator reflecting corporate funding costs, rose 9 basis points to 5.76 per cent in the third quarter, according to the People's Bank of China's latest quarterly monetary implementation report.

At the end of October, industrial firms' liabilities were 6.7 per cent higher than a year earlier, compared with a 6.7 percent increase at the end of September.

REUTERS