China-listed companies report slower first-quarter earnings as raw-materials costs bite while outlook remains grim

Profits for Shanghai and Shenzhen-listed companies rose 4.1 per cent year on year, a significant slowdown from 18.4 per cent full-year growth in 2021

Brokerages forecast that earnings will continue to worsen this quarter, reflecting damage from lockdowns in China

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Workers inspected an oil well at Jidong Oilfield in north China’s Hebei Province on Dec. 12, 2021. Rising prices for oil and other raw materials led to higher profits for upstream companies in the first quarter. Photo: Xinhua

Published: 3:32pm, 5 May 2022

Companies listed in Shanghai and Shenzhen are facing a slump in earnings capacity this year as the war in Ukraine and Covid-19 disruptions sent prices of commodities from crude oil to lithium skywards, pressuring manufacturing costs and margins.

Profits rose 4.1 per cent last quarter from a year earlier, according to the data by China International Capital Corp (CICC). They are poised to grow by 6 to 10 per cent this year, according to Citic Securities. That would be the slowest growth in three years, and represents a significant cooling from 18.4 per cent in 2021.

Spiking prices for raw materials benefited upstream industries, which generated a 58 per cent jump in average profit last quarter, the CICC data showed. Midstream industries grew their earnings by 7 per cent, while downstream industries suffered a 7 per cent drop, it added.

Brokerages including Ping An Securities and Essence Securities warned that earnings are likely to worsen this quarter amid curbs in Shanghai and 40 other mainland cities since late March. These regions account for about 35 per cent of China’s national output, according to Saxo Markets. Growth may bottom out in the third quarter as policymakers roll out more supportive measures, the brokerages said.

A pedestrian walks past a China International Capital Corp (CICC) securities brokerage branch in Beijing on July 5, 2016. Photo: Bloomberg

Slower earnings reflect dislocations in the economy as Russia’s invasion of Ukraine ramped up commodity prices while Covid-19 outbreaks disrupted supply chains and forced factories to shut down.

Even some of the nation’s biggest companies could not withstand the repercussions. Contemporary Amperex Technology, the world’s biggest maker of lithium batteries for electric cars, reported a 24 per cent slide in first-quarter profit due to rising raw-materials costs.