China’s industrial profit growth rebounded to 14.4% in September, driven mainly by prices and mining
Nomura believes industrial profit growth rose markedly in September from August, mainly driven by higher industrial producer prices. Profit margins improved but remained below the second-quarter average.
Original source：Nomura International (Hong Kong) Ltd.First published on Unhidea：Original source date：
Key takeaway
China’s year-on-year industrial profit growth rebounded sharply in September, but Nomura believes the rebound came mainly from prices and mining. Monthly data are volatile, and profit margins have yet to return to second-quarter levels.
How much did profit growth rise?
China’s monthly industrial profit growth accelerated year on year from 4.2% in August to 14.4% in September, an increase of 10.2 percentage points.
Nomura estimates that the profit margin edged up from 5.7% in August to 5.8% in September, above the third-quarter average of 5.6% but still below the second-quarter average of 6.2%. Profit growth rebounded, while the margin remained below its second-quarter level.
Was the rebound driven mainly by output or prices?
Nomura believes the improvement in profits was most likely driven mainly by prices: the year-on-year increase in the industrial producer price index (PPI) rose from 3.8% in August to 5.0% in September.
By comparison, year-on-year industrial production growth edged up only from 5.2% in August to 5.5% in September. The change in price growth was much larger than the change in production growth, so the bank sees prices as the main driver of the profit rebound.
Which sectors supported the improvement?
Nomura noted that mining was the main driver of the improvement in profits, while manufacturing and utilities lagged relatively behind.
Looking at month-on-month changes in cumulative growth rates since the start of the year, sectors with larger improvements included other mining, coal mining and washing, oil and natural gas extraction, and the manufacture of alcoholic beverages, other beverages and refined tea.
Because monthly industrial profit data are volatile, Nomura cautioned against overinterpreting a single-month rebound. Differences in sector performance also indicate that the improvement did not advance simultaneously across all areas.
