A COMBINATION of raw material inflation and weak consumer spending has made the third quarter a brutal period for China’s biggest companies, with property, agriculture and power generation sectors set to show the worst plunges in profit.

Roughly a quarter of China’s over 4,000 listed firms have already published earnings or preliminary results for the season. While still early, analysts concur that overall year-on-year growth will be disappointing, accentuated by the comparison to last year’s high base when China was the only major economy that grew during the pre-vaccine stage of the pandemic.

The corporate outlook is also clouded by a prolonged chip shortage and an energy crunch limiting manufacturing capacity.

Goldman Sachs has lowered 2021 earnings growth for mainland-listed firms to 20 percent this year from 27 percent earlier, while domestic investment bank CICC expects the number of sectors with disappointing results to outnumber those that beat expectations.

Material suppliers are expected to be one of the only bright spots. As China faces both energy and supply chain shortages, upstream companies providing everything from steel to silica have seen marked gains.

With prices surging amid the competition for supply, raw material makers in sectors like mining and chemicals are seeing earnings double this quarter according to preliminary figures, said brokerage Industrial Securities.

Bellwethers like glass-fiber maker China Jushi Co. expect profit growth of at least 220 percent while Wanhua Chemical Group reported a jump of 139 percent, bolstered by rising volumes and prices.

But the days of abundance for these cyclical names are likely nearing an end: sequential growth has already slumped to the low single digits, CITIC Securities wrote. And while prices have inflated, sales volumes have not, reflecting the ephemeral nature of the current surge, said Huatai Securities analysts including Zhang Xinyuan.

The power generation sector had a bruising third quarter, with coal-based power producers unable to buy enough fuel, and prevented from raising electricity prices on consumers by government caps.

Around two-thirds of the firms that have reported so far show a deterioration in earnings, Huatai Securities found, with the weighted average growth for the sector falling 114 percent. (SD-Agencies)