Raw material prices hurt industrial profits

Profit growth at China's industrial firms slowed again in May as surging raw material prices squeezed margins and weighed on factory activity.

Profits at China's industrial firms rose 36.4 percent in May from a year earlier to 829.92 billion yuan (US$128.58 billion), official data showed on Sunday.

That was a slowdown from the 57 percent surge reported in April, according to National Bureau of Statistics.

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.

Profits grew rapidly in the metals, chemicals and petroleum sectors, while smaller and downstream enterprises saw much more pressure, Zhu said.

The pharmaceutical manufacturing industry also saw strong growth, driven by demand for pandemic-related medical supplies such as COVID-19 vaccines and testing kits. The sector's profits soared 85.7 percent over a year earlier, jumping by 23.6 percentage points from April.

For the January-May period, industrial firms' profits grew 83.4 percent from the same period a year earlier to 3.42 trillion yuan.

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 mid- and downstream firms. Policy-makers have stepped up efforts to cool runaway metals prices, including selling supplies from state reserves.