Persistent oversupply means that last year’s worst performers in terms of earnings — crude oil refiners, steel mills and coal miners — continued to prop up the table in the first quarter, according to data from the statistics bureau on Sunday.
Overcapacity in those industries is colliding with weak demand, a dynamic that’s only likely to worsen in the event of a prolonged trade war with the US. The government has yet to follow through on promises made early last month to reduce overproduction in oil processing and steelmaking. The coal industry has called for its own cuts, although that didn’t stop output hitting record levels in recent months.
Oil refiners were still losing money in the first three months due to a glut of petroleum products caused by the country’s real estate crisis and its rapid adoption of electrified transport. Coal producers saw earnings slump 48% from the previous year — only the iron ore miners that feed the steel industry saw a bigger drop — while steel mills eked out a small profit.
The coal sector has been particularly hard hit by falling prices. Benchmark thermal coal has fallen 13% so far this year to a four-year low, close to the market’s theoretical floor of long-term contract rates set by the government. Steel mills haven’t fared much better as the impact of China’s property crash rolls on, although they have seen some support to margins from a drop input costs — including iron ore and the coking coal used in blast furnaces.
While the biggest producers are generally faring better than smaller outfits, first-quarter earnings at the top listed companies continue to paint a troubled picture. On Friday, coal miner China Shenhua Energy Co. reported an 18% slide in net income, although it did pare output slightly. Steelmaker Baoshan Iron & Steel Co. saw net income plunge 38%.
The largest oil refiner, Sinopec, releases its earnings later on Monday, when it’s expected to report shrinking profits.
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