Profits up again for mainland factories

Lower raw material prices helped companies to boost income for the second month in a row. The best performers were power generators

PUBLISHED : Wednesday, 28 November, 2012, 12:00am
UPDATED : Wednesday, 28 November, 2012, 2:34am


The mainland's manufacturing sector last month recorded year-on-year growth in monthly profits for the second time this year, as a turnaround seen in September gained momentum.

Profits of companies with yearly sales of at least 20 million yuan (HK$24 million) grew 20.5 per cent year-on-year in October to 500.1 billion yuan, the National Bureau of Statistics said yesterday. This accelerated from growth of 7.7 per cent in September - the first gain in six months.

For the first 10 months of the year, industrial profit edged up 0.5 per cent from the same period last year to 4 trillion yuan.

"Robust earnings growth in October lends further support to our above-consensus gross domestic product growth forecasts in general and [profit] margin improvement views in particular," said Bank of America Merrill Lynch economists Lu Ting and Larry Hu. "We expect the street to turn more positive on short-term economic and earnings growth."

They attributed the change of fortune in September and last month partly to a lower comparison base in the same period last year, when Beijing's economic tightening crimped profits.

Lower raw material prices also allowed manufacturers to boost their income. In the second and third quarters, they suffered margin squeezes, partly because they were running down pricier raw materials bought earlier.

In the past two months, manufacturers' orders were also lifted by a change from materials destocking to restocking as downstream customers react to a pick-up in consumer demand.

An improvement in exports of manufactured goods also helped increase profits. Industrial output and new export orders both increased last month and reversed negative readings in September, according to the preliminary manufacturing purchasing managers' index released by HSBC and research partner Markit Economics last week.

The index, a gauge of industrial health, showed the manufacturing sector expanded for the first time in 13 months last month.

According to the statistics bureau, 27 industries reported profit growth in the first 10 months, of which power and heat generation was among the biggest gainer with a growth of 57.5 per cent, while food processing posted an increase of 16.1 per cent.

Lower coal prices and an electricity price increase last December helped boost the power producers' bottom lines.

Still, some 13 industries managed lower profits, of which steel smelting and processing registered a 60.3 per cent decline, as they absorbed high iron ore and coking coal prices amid a slump in steel prices.

However, Xinhua on Saturday quoted China Iron & Steel Association chairman Liu Zhenjiang as saying losses in the steel industry narrowed last month and he expected profitability to be better in the fourth-quarter.