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. 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. The rally in energy and raw-materials stocks, the only winning sectors among the CSI 300 Index’s industry groups this year, will probably prolong, according to Citic Securities, China’s biggest brokerage. Tesla’s supplier CATL suffers another market rout on accounts delay, costs “Earnings are expected to shift to the upstream companies this quarter,” said Qiu Xiang, an analyst at the Beijing-based brokerage. “Looking to the midstream manufacturing industry, they will continue to face the double whammy of shrinking demand amid the pandemic and cost pressure.” Citic Securities predicts that full-year profit growth will recover to between 6 per cent and 10 per cent this year as Beijing takes more steps to boost growth. The Shanghai Composite Index rose 0.7 per cent on Thursday as China’s onshore markets resumed trading after a three-day holiday. Still, it is the worst performer among the stock benchmarks in Asia this year, with a 16 per cent decline. A Politburo meeting chaired by Communist Party chief Xi Jinping on April 29 signalled that China may ease a year-long crackdown on the tech industry in a bid to revive growth. He also stressed that the nation will stick to its strict zero-Covid policy, a key concern for investors now. “Given the broad logistics delay and production suspension/shutdown in China since April, caused by mobility restrictions and the significant disruptions to consumer and service sectors, more downward earnings revisions should be seen in the near future,” said Meng Lei, a strategist at UBS Group in Shanghai.