China’s industrial profits fell 3.3% in 2024, with oil refiners, steelmakers, and coal miners among the worst-performing sectors. Overcapacity and slowing economic growth have weighed on traditional industries, and the outlook for 2025 remains bleak—especially if trade tensions with the U.S. escalate.
Oil, Steel, and Coal Face Mounting Pressure
China’s old-economy stalwarts—oil refining, steel, and coal mining—struggled last year, and signs point to continued challenges:
- Oil refining: The sector was the only major industry to post a cumulative loss, losing 46 billion yuan ($6.3 billion). Shrinking demand for gasoline and diesel, as China shifts to greener energy, is forcing refineries to cut production.
- Steel: Iron and steel profits fell 55% in 2024. With China’s property sector still in crisis, new sources of demand haven’t fully replaced lost consumption.
- Coal: Despite falling 22% in profitability, coal output continues to rise, driven by government policies prioritizing energy security. Coal production is expected to grow another 2% this year, surpassing the record 4.76 billion tons mined in 2024.
Overcapacity Worsens Deflationary Pressures
Cheaper commodities may be reducing costs for manufacturers, but they are also deepening deflationary pressures, impacting China’s downstream businesses.
The government has made tackling overcapacity a priority:
- A 1 billion-ton cap on oil refining will be implemented this year.
- Steel production is being curbed to reduce emissions, but remains above 1 billion tons.
- Other sectors, including solar equipment manufacturers and copper smelters, are introducing self-imposed production limits.
Factory Activity Slows Ahead of Lunar New Year
China’s factory activity unexpectedly contracted in January, as businesses wound down ahead of the upcoming eight-day Lunar New Year holiday. The slowdown comes as the country struggles with weaker economic momentum.
Carbon Emissions and Energy Demand Rise
China’s carbon emissions increased slightly in 2024, as clean energy expansion failed to keep pace with surging electricity demand. The country’s power consumption has become a focal point in the global fight against climate change.
Fiscal Challenges Add to Economic Woes
The Chinese government missed its 2024 spending target, with local authorities strapped for cash due to the prolonged housing market slump. Without sufficient funds, infrastructure projects and economic stimulus efforts remain constrained.
Key Economic Events This Week
Investors and analysts will be watching several key economic indicators in the coming days:
- Monday, Jan. 27: China’s industrial profits for December and official PMIs for January (09:30 AM Beijing time).
- Tuesday, Jan. 28: Mainland China’s Lunar New Year holiday begins, running through Feb. 4.
- Wednesday, Jan. 29: Hong Kong markets close for public holidays through Jan. 31.
Conclusion
China’s industrial sector faces mounting challenges from overcapacity, weaker demand, and economic uncertainty. As trade tensions with the U.S. loom and the government struggles to stimulate growth, 2025 could be another tough year for the country’s traditional industries.