Chinese companies are under pressure from rising commodity prices


Rising commodity prices are putting pressure on companies in China, even as the country’s largest industrial sector picks up the first effects of the coronavirus pandemic, according to the official data agency.

The National Bureau of Statistics released on Thursday figures showing a 57 per cent increase in profits in large industrial enterprises in April compared to a year earlier, with the sector benefiting from the comparison with a low base in 2020 due to of the pandemic. Profits grew 92 percent in March.

The data showed an “irregular” improvement in corporate performance in China, the NBS said, despite the size of the economy. resumed last year. Higher prices for raw materials have increased the profits of miners and other producers, but also support increased costs for downstream companies along the supply chain, the NBS added.

“The profitability of some consumer goods industries has not yet recovered to its pre-pandemic level,” said Zhu Hong, an NBS official. “In conjunction with high commodity prices, this has increased the pressure on the production and operation of the midstream and downstream industries.”

The Chinese government has expressed growing concerns about a rally in commodity prices that has been partly driven by the country’s rapid industrial recovery and also hopes of stronger global growth this year.

Factory door prices in China, which are driven by raw material prices, it jumped 6.8 percent last month, its fastest pace in three years. But consumer price inflation has remained below 1 percent.

A meeting of the state council, chaired by Li Keqiang, China’s prime minister, said last week measures to prevent costs from entering consumer prices.

The country’s economic planning agency issued a warning Monday on “excessive speculation” and said it would resume hoarding and monopolies of raw materials, which has helped push back the price of iron ore fell 7 per cent after striking a record this month.

NBS data showed that the profits of companies engaged in the smelting of non-ferrous metals increased by 484 per cent and mining profits doubled from January to April, compared with the same period a year earlier.

Consumption has lagged behind the strength of the industrial sector in China’s recovery, which saw gross domestic product growth return to pre-pandemic rates at the end of last year. This is a challenge for companies facing higher costs and consumer confidence, which has not fully recovered.

“The problem for them is that it’s usually very difficult to get past the cost pressure for consumers,” said Larry Hu, China’s chief economist at Macquarie.



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