China Steel Producers' Profits Hit, But Country's GDP Will Grow

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Continued from Part One.

Growth is put down to infrastructure spending, a mild rebound in exports, cheaper raw materials and looser monetary conditions.

Investment (including infrastructure spending) accounts for nearly half of China’s gross domestic product, making it as big an engine of growth as consumption and exports combined.

today's metal prices - MetalMiner IndXAlthough the much-hyped resurgence of high-speed rail construction only really represents about 2 percent of that investment, its importance is far greater, stoking demand for steel and copper, and helping shape business sentiment.

Interestingly, the steel sector is one that has seen a decline in profitability, as raw material prices have risen faster than demand, and hence the sales prices the mills can achieve in the market place.

Among the 41 sectors surveyed by China’s National Bureau of Statistics and reported in the Financial Times, 29 reported a rise in profits, but profits at steel producers fell 37 percent last year from a year earlier and earnings for chemical companies dropped 6 percent.

Power generation companies, on the other hand, reported a 69 percent surge in profits as imported coal prices dropped, while food processing companies saw a nearly 21 percent increase and electrical equipment makers’ profits rose 8 percent.

The private sector is seeing stronger profit growth at a 20 percent rise against the state sector, where profits dropped 5.1 percent, increasing the private sector’s position to Rmb 1.82 trillion against Rmb 1.42 trillion for the state sector.

So we enter the New Year in a markedly different place from this time a year ago.

China is recovering strongly, and rather than adding to the bad news each month, is more likely to be a counter to continued weakness in Europe or worries about US fiscal cliffs.

A regular trickle of good news would be a welcome change from 2012’s stream of worries and crises.

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