(Bloomberg) -- Commodities producers are China’s worst-performing industrial firms, as state-owned enterprises rooted in the old economy bear the brunt of a sluggish economy.

Crude oil processors, coal miners and steelmakers were among the few businesses to show falling profitability or outright losses in the first five months of 2024, according to the National Bureau of Statistics on Thursday. Oil refiners posted the most dramatic slump, with profits declining 178% over the year to date compared to the same period in 2023. Coal firms fell 32%. Industrial profits as a whole rose 3.4%.

All three sectors are contending with too much capacity relative to demand, at a time when consumption is either peaking or slowing, and China’s raw materials-heavy growth is flattening. Other headwinds include prolonged deflation at the factory-gate and Beijing’s drive to cut carbon intensity, which has an outsized effect on the biggest emitters of the old economy. 

Blame electric vehicles, but China’s decades-long boom in oil processing is likely to stagnate, or even reverse this year. That would be the first drop in data going back to 2004, excluding a Covid-hit 2022. Beijing has recognized the limits to growth and will impose a 1-billion-ton a year capacity cap on refiners by 2025.  

Coal producers, meanwhile, are the victim of a slump in prices engineered by the government to prevent the power outages that have crippled the economy in recent years. Running into peak summer demand season, the nation has made sure it has a surfeit of coal. Worse could be around the corner for miners. China’s consumption of the dirtiest fossil fuel is expected to peak in 2025 to meet President Xi Jinping’s climate goals.

Steel mills are struggling to offset the impact of the protracted crisis in the housing market, historically their biggest source of consumption. Although output picked up in May, “demand remains soft, with crude steel exports high, inventories lifting and steel margins under pressure,” UBS Group AG said in a note this week.

Steel prices should rise if the government enforces its annual production cap linked to emissions. Cutting supply will help address the fact that China’s on a path to consuming less of the alloy as its economy matures, although it’ll be small comfort to mills competing for less business.  

On the Wire

The London Metal Exchange is exploring setting up its first warehouse in Hong Kong for metals delivery as it seeks to strengthen services across Asia.  

China became a world leader in electric vehicles by showering companies with public cash. It’s a charge increasingly heard in the US and Europe, and a refrain that’s central to the escalating trade war.

China’s capital city of Beijing eased homebuying requirements for downpayment and mortgages, joining the country’s other mega cities to support the real estate sector. 

This Week’s Diary

Thursday, June 27:

  • China industrial profits for May, 09:30
  • LME Asia Metals Seminar in HK, 09:00
  • “Summer Davos” in Tianjin, day 3

Friday, June 28:

  • China weekly iron ore port stockpiles
  • Shanghai exchange weekly commodities inventory, ~15:30

Saturday, June 29

  • Nothing major scheduled

Sunday, June 30

  • China’s official PMIs for June, 09:30

--With assistance from Sarah Chen.

©2024 Bloomberg L.P.