Profits at China's industrial companies slowed in May as a result of increased costs for raw materials, official data showed Sunday.
Industrial profits rose 36.4% in May from a year earlier, the National Bureau of Statistics said Sunday, compared with a 57% increase in the previous month. In the first five months of the year, profits climbed 83.4% from a year earlier.
The steady recovery of market demand and continuous improvement of industrial companies' operation have contributed to the sustained growth in profits, Zhu Hong, an economist with the statistics bureau, said in a statement. The recovery is still unbalanced with smaller companies registering a slower pace than large- and medium-sized enterprises, Zhu said.
Rising commodity prices have seen profits for upstream industries such as raw material producers rise 33 - but have hurt downstream businesses because of input cost increase.
The world's second-largest economy has largely recovered from disruptions caused by Covid-19, but it faces new challenges such as elevated raw material costs and global supply chain crunches. Officials warn that China's recovery remains uneven.
Imbalances in profitability became prominent between upstream and downstream firms due to high commodity prices, said Zhu Hong, an official at the statistics bureau.
"The foundation for recovery is not yet solid," he said in a statement accompanying the data.
Profits grew for metals, chemicals and petroleum sectors while smaller and downstream enterprises saw much more pressure, Zhu said.
For the January-May period, industrial firms' profits grew 83.4% from the same period a year earlier to 3.42 trillion yuan ($$529.8 billion).
Factory-gate inflation saw its fastest annual growth in over 12 years in May driven by surging commodity prices, posing risks to profit margins for midstream and downstream companies.
China has stepped up efforts in recent weeks to cool runaway metals prices, including selling supplies from state reserves, but with global demand continuing to recover some analysts believe the moves will have only a limited impact, experts told Reuters and Bloomberg News Sunday.
In the coming week official manufacturing data is expected to show weaker growth in activity in June - likely as a result of disruptions caused by Covid-19 flare-ups at the country's big southern ports, Reuters reported. In addition, market participants will be looking to trends in input costs and selling prices for signs of margin pressures.
Liabilities at industrial companies were up 8.2% year on year at the end of May compared with 8.6% growth a month earlier.
The industrial profit data covers large companies with annual revenues of more than 20 million yuan from their main operations.
