(Yicai Global) June 28 -- Profits at China’s major industrial firms surged 36.4 percent in May from the same period last year largely due to a big surge in commodity prices, a strong rebound in exports and last year’s low baseline, according to the latest figures.

Profits were up 44.6 percent in May from 2019 and grew at an average rate of 20.2 percent over the last two years, according to statistics released yesterday by the National Bureau of Statistics of China. Of these, the upstream raw material industry did the best, with profit more than doubling year on year, while small and medium-sized downstream firms are still under pressure, it added.

Soaring commodity prices were the core driving force for the substantial growth of China’s industrial profits in May, Zheng Houcheng, director of Yingda Securities Research Institute, told Yicai Global.

For the five months ended May 31, profits at medium and large-sized factories jumped 83.4 percent from the same period last year, and 48 percent from 2019, to CNY3.4 trillion (USD526 billion).

Robust export demand was another major contributor to the rising profits, said Wang Han, chief economist at Industrial Securities. The pharmaceutical industry did very well, largely due to growing demand for anti-epidemic materials across the globe. Computer, special equipment and instrument manufacturers were also propped up by exports.

More companies are replenishing their stock as domestic consumption and manufacturing investment improves and exports stay high, said Wu Chaoming, chief economist of Caixin Securities. At the end of May, the inventory of finished products of industrial enterprises increased by 10.2 percent year on year, a gain of 2 percentage points from the end of April, according to the NBS.

There is still great potential for factories to increase their inventories in the third quarter as inventory growth in the upstream and downstream industrial chain is still quite low, Wu said.

The sharp rise in commodity prices is squeezing profits in downstream consumer goods firms, Wang said. For example, profit growth in the textile, apparel and furniture manufacturing industries is slow at present. Although exports are on the rise, their profit is being undercut by the surging price of upstream raw materials.

Private companies in the mid and downstream industrial chain are faring the worst, as their willingness to pick up orders has declined in the face of certain operating difficulties, leading to shrinking production, Zheng said. But conditions should improve in the second half as the government brings in more tax-relief measures and has indicated that there will be no sharp turns in monetary policy, he added.

Editor: Kim Taylor