China's industrial profits in biggest surge in six years

Profits for China’s industrial powerhouses surged the most in nearly six years in September as a government capacity reduction campaign sparked fears of winter supply shortages and sent prices of goods like steel and copper sharply higher.

Industrial profits in September rose 27.7 percent from a year earlier to 662.18 billion yuan (99.46 billion U.S. dollars), accelerating from a 24 percent jump in August, the National Bureau of Statistics (NBS) said on its website on Friday.

That was the sharpest gain since December 2011, when profits grew 31.5 percent.

A breakdown of the profit data showed heavy industry continued to reap most of the benefits from the building boom, which is being driven by heavy government infrastructure spending and a heated housing market.

Mining industry profits surged 473.8 percent from a year earlier in January-September, and manufacturing profits rose 19.6 percent.

Earnings in the mining industry soared 5.9 times from a year earlier last month. But sectors such as electricity, gas and water production saw their profits fall 18.3 percent.

For the first nine months of the year, the firms notched up profits of 5.58 trillion yuan, a 22.8 percent jump from the same period last year and up a touch from 21.6 percent growth in January-August.

While a year-long construction boom is starting to show signs of fatigue, still robust industrial earnings will be good news for the country’s leaders who gathered for a critical Communist Party of China national congress over the past week to set political and economic priorities for the next five years.

China’s economy has surprised global financial markets and investors with robust growth so far this year, with the rebound in its industrial sector contributing to a reflationary pulse that has boosted manufacturing worldwide.

Market watchers had expected solid September earnings growth after the producer price index (PPI) rose by a sharper-than-expected 6.9 percent from a year earlier.

A year-long construction boom has helped boost prices for building materials from steel and glass to copper pipes, giving China’s long-ailing industrial sector its best profits in years.

But the world’s top steel producer is ramping up efforts to reduce winter smog as it urges major northern China industrial cities to slash steel output well ahead of the official winter heating season.

While that has spurred fears of shortages and pushed steel prices higher, the environmental clampdown could have the opposite impact on demand for steelmaking raw materials, such as iron ore and coking coal.

The country’s steel output dropped in September from a record high in August as mills cut production in line with Beijing’s campaign for clearer skies, pointing to further drops as winter curbs set in.

Aluminum Corp of China Ltd announced a plan on Thursday to bring up to 16 billion yuan of investment into five of its subsidiaries after posting a more than 10-fold rise in nine-month net profit, boosted by soaring aluminum prices.

(REUTERS)