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With the greenback going weak, prices of basic energy resources including oil and coal will continue the upward movement. This will finally hurt the profitability of the downstream sectors for which the rising momentum of profits was impeded at the end of 2004. This is the conclusion made by Jiang Yuan, a senior statistician with the National Bureau of Statistics.

The vehicles manufacturing industry, the auto industry in particular, was unfortunately the first one to suffer a sweeping profits downturn. More sectors are expected to face the same situation in 2005.

Generally, there are a number of positive factors to keep the country¡¯s industrial profits rising in 2005. However, the pace of around 20 percent will be much slower than the 40 percent increase in 2003 and 2004.

The international crude oil price is hovering above 40 USD following a surge to 55 USD since last October. But it is still much higher than the beginning of last year. The depreciation of US dollars has actually forced OPEC to gear up its crude oil price which was previously set at 22-28 USD.

Given the fact that securing high oil price is a long-term policy of OPEC in its interests, there is still possibility of the price hitting last year¡¯s record, rather than falling back to 30 USD.

Domestic oil exploration industry which saw its profits double in the 4th quarter last year will continue its gala in 2005. There will be a remarkable rise for the whole year but a considerable slowdown will be likely in the second half of the year.

In 2005 coal mining industry will continue to enjoy good days. Coal production will hopefully top 2 billion ton for the first time which accounts for half of the world¡¯s total. Driven by the rising oil prices, prices of coal as substitute energy will gather momentum.

While the State Council has approved a coal-and-power price link scheme, most coal businesses are reluctant to accept the 8 percent price hike set by the State Development and Reform Commission. Coke is also eyeing another round of price jump. A conservative forecast suggests a 20 percent plus profits surge for coal mining in 2005.

Some lines of steel sheets hit a record high at the end of last year. Chances of inflating ore prices are every high in 2005. Coking coal will likely be sold at 90 to USD per ton which is 55 USD per ton now. Baosteel has taken pre-emptive action by quoting higher steel sheets prices for the first quarter of the year.

Prices of steel sheets in the domestic market will be more boosted by demand than by costs. They will be basically stable while experiencing upturn. The beginning and the end of 2005 will be peak seasons for profits of the iron and steel industry while the mid-year be the slack-off. An upswing of the profits for the whole year, if there is, will be much more moderate than last year¡¯s 60 percent plus.

Some downstream sectors will be bashed hard by swelling bills of energy and raw materials. Oil processing industry will even suffer negative rise for its profits. Chemical fiber, rubber and plastics will undergo shrinking or nearly zero profit rise. Cement and aluminum which are targeted by the macro-control campaign had better get prepared to face tougher time.

The mechanical industry normally responses to the macro-policy half year late. Optimism is not encouraged for auto, engineering machinery, cranes and transportation vehicles. The swelling inventory of engineering machinery and the rise of leasing business in the industry have dampened sales performance of engineering machinery.

Power generators will not generate as much profit as they used to due to the government¡¯s efforts on reining in irrational power investment. 60 percent of power is fueled by coal. In this case, the prospect of the power industry largely depends on the coal-and-power price link which is still in discussion. Big state-owned power plants can continue to make money thanks to contracted cheap coal supply while smaller or non-state-owned plants will not be as lucky.