Midstream manufacturing profit margin "reborn from the ashes" — January to February industrial enterprise profit review

Wen: Chief Economist of Huachuang Securities Zhang Yu, License Number: S0360518090001

Contact: Lu Yinbo (15210860866)

Report Summary

December industrial enterprise profit data: Dual improvements in revenue and profit margins, significant increase in profit growth

From January to February, the profits of industrial enterprises above a designated size increased by 15.2% year-on-year. In terms of inventory, as of February 2026, inventory increased by 6.6% year-on-year, compared to a previous value of 3.9%. By ownership type, from January to February, the profit growth rate for state-controlled industrial enterprises was 5.3%, for private enterprises it was 37.2%, and for foreign and Hong Kong/Macau/Taiwan enterprises it was -3.8%.

In terms of volume, price, and profit margin breakdown, both volume and price increased. The PPI year-on-year from January to February accumulated -1.2%, compared to -1.9% in December of last year. The industrial added value growth rate from January to February was 6.3%, compared to 5.2% in December of last year; the revenue growth rate from January to February was 5.3%, compared to -3.2% in December of last year. The profit margin for January to February was 4.92%, compared to 4.49% in the same period last year (comparable caliber). Breaking down the profit margin, the gross profit margin from January to February was 15.2%, compared to 14.9% in the same period last year; the expense ratio was 8.66%, compared to 8.56% in the same period last year; the other gains and losses income ratio was 1.58%, compared to 1.80% in the same period last year. By industry, from January to February, the mining industry was up 9.9% year-on-year, manufacturing was up 18.9%, and electricity, heat, gas, and water were up 3.7%. Within manufacturing, the midstream equipment manufacturing industry saw a year-on-year growth rate of 23.4%, with the computer, communications, and other electronic equipment manufacturing industry’s profit increasing by 2.0 times; the electrical machinery and equipment manufacturing industry grew by 6.2%; the special equipment manufacturing industry grew by 4.3%, general equipment manufacturing grew by 3.6%; and transportation equipment grew by 11.4%. The automobile manufacturing industry declined by 30.2%.

The triple test of midstream gross profit margins

For the midstream, demand has remained strong since 2025. There are concerns about the stability of its gross profit margin. During this period, it has experienced tariff shocks, significant increases in non-ferrous metals leading to direct cost shocks, and substantial oil price increases. As of February, the first two rounds of shocks had little effect on midstream gross profit margins; in fact, under the recent price increases in the midstream, there has been a slight uptick in midstream gross profit margins. After the third round of shocks, the resilience of midstream profits may become more pronounced.

(1) Test One: Tariff Shock, Gross Profit Margin Only Slightly Declines

Starting in April 2025, the United States significantly increased tariffs globally. In terms of tariff revenue, in March of last year, it was $8.16 billion, which increased to $29.67 billion by September of last year, and then dropped to $26.59 billion by February 2026. Thus, it can be considered that the pressure from tariffs was at its peak during Q2-Q3 of 2025. Focusing on the midstream manufacturing gross profit margin during this period, the gross profit margin for midstream manufacturing was 14.5%, only down 0.1 percentage points compared to Q2-Q3 of 2024.

(2) Test Two: Direct Cost Shock, Gross Profit Margin Increases Instead of Decreases

Since October 2025, there has been a significant increase in non-ferrous metals. Looking at the PPI for non-ferrous minerals and non-ferrous processing, the overall price increase was 18.6% (from October 2025 to February 2026), while during the same period, the PPI for midstream manufacturing accumulated an increase of 0.9%. From the cost side of midstream manufacturing, the combined cost of non-ferrous mining and non-ferrous processing accounts for 9% of total costs, hence the significant increase in non-ferrous metals has had a substantial impact on their costs. Observing the changes in the gross profit margin of midstream manufacturing from Q4 of last year to this February, the gross profit margin during this period was 15.2%, better than the 14.8% in the same period last year. That is to say, during the five months of significant increases in non-ferrous metals, the overall gross profit margin of the midstream increased instead of decreased. This may be related to faster revenue growth and increases in the factory prices of the midstream itself.

(3) Test Three: Impact of High Oil Prices

The third major test may come from oil prices. The impact of oil prices may be transmitted to the midstream cost side through chemicals or electricity prices, and may also affect price transmission in the midstream through demand-side shocks. From historical experience, there have been periods when rising oil prices led to further increases in midstream gross profit margins (Q2-Q3 2018), as well as periods when gross profit margins declined (Q2 2021 to Q3 2022). The impact of the current round of oil price increases on midstream gross profit margins is yet to be observed. However, considering that the weight of non-ferrous costs in midstream is greater, and that China’s electricity prices are less affected by oil prices than overseas, this may lead to an increase in export shares. Additionally, the current high oil prices, stemming from supply shocks, may bring about more energy investments that increase midstream demand. Hence, midstream gross profit margins may be more resilient.

Specifically, regarding the impact of oil prices on electricity prices, taking 2022 as an example, influenced by the Russia-Ukraine conflict, the yearly average oil price rose significantly. European electricity prices (PPI measure, representing industrial electricity, same below) rose by 61% for the year, while U.S. electricity prices rose by 90.5%. In contrast, China’s electricity prices only rose by 5.1% for the year.

II. Comments on January-February Industrial Enterprise Profit Data

From January to February, according to data from the National Bureau of Statistics, profits of industrial enterprises above a designated size increased by 15.2% year-on-year. In terms of inventory, as of February 2026, inventory increased by 6.6% year-on-year, compared to a previous value of 3.9%. By ownership type, from January to February, the profit growth rate for state-controlled industrial enterprises was 5.3%, for private enterprises it was 37.2%, and for foreign and Hong Kong/Macau/Taiwan enterprises it was -3.8%.

In terms of volume, price, and profit margin breakdown, both volume and price increased. The PPI year-on-year from January to February accumulated -1.2%, compared to -1.9% in December of last year. The industrial added value growth rate from January to February was 6.3%, compared to 5.2% in December of last year; the revenue growth rate from January to February was 5.3%, compared to -3.2% in December of last year. The profit margin for January to February was 4.92%, compared to 4.49% in the same period last year (comparable caliber). Breaking down the profit margin, the gross profit margin from January to February was 15.2%, compared to 14.9% in the same period last year; the expense ratio was 8.66%, compared to 8.56% in the same period last year; the other gains and losses income ratio was 1.58%, compared to 1.80% in the same period last year.

By industry, from January to February, the mining industry was up 9.9% year-on-year, manufacturing was up 18.9%, and electricity, heat, gas, and water were up 3.7%. Within manufacturing, the midstream equipment manufacturing industry saw a year-on-year growth rate of 23.4%, with the computer, communications, and other electronic equipment manufacturing industry’s profit increasing by 2.0 times; the electrical machinery and equipment manufacturing industry grew by 6.2%; the special equipment manufacturing industry grew by 4.3%, general equipment manufacturing grew by 3.6%; and transportation equipment grew by 11.4%. The automobile manufacturing industry declined by 30.2%. Some upstream manufacturing industries also performed well, including non-ferrous metal smelting and rolling industries growing by 1.5 times, chemical raw materials and chemical products manufacturing growing by 35.9%, and non-metallic mineral products industry growing by 16.2%. In contrast, the downstream performance of manufacturing was relatively weak, with a growth rate of -5.6%. Among them, the beverage industry experienced a decline of 17.2%.

From the revenue side, from January to February, the midstream revenue growth rate in manufacturing was 8.8%. The upstream revenue growth rate in manufacturing was 4.26%, the downstream growth rate was 2.8%, the mining industry growth rate was -0.3%, and the electricity, heat, gas, and water growth rate was 0.54%.

For detailed content, please refer to the report “The ‘Phoenix Rebirth’ of Midstream Manufacturing Gross Profit Margin—Comments on January-February Industrial Enterprise Profits” released by Huachuang Securities Research Institute on March 27.

According to the “Measures for the Management of Appropriateness of Securities and Futures Investors” and supporting guidelines, this material is only intended for professional investors among Huachuang Securities clients. Please do not forward this material in any form. If you are not a professional investor among Huachuang Securities clients, please do not subscribe to, receive, or use the information contained in this material. This material is difficult to set access restrictions; we apologize for any inconvenience caused. Thank you for your understanding and cooperation.

Huachuang Macro Key Report Collection

20250507-Zhang Yu: Safeguarding “Certainty”—Understanding the Learning of the “Package of Financial Policies Supporting Stability in Market and Expectations” on May 7

Legal Disclaimer

Huachuang Securities Research Institute is positioned as a research team for professional investors. This material is only applicable to recognized professional investors and is solely for timely communication of research views in the context of new media. Huachuang Securities does not regard any subscriber of this material as a client of the company due to any act of subscribing to this material. Ordinary investors using this material may experience misunderstandings regarding key assumptions, ratings, target prices, etc., in the report due to the lack of interpretative services, which could lead to investment losses.

This material is sourced from research reports already published by Huachuang Securities Research Institute. In case of any ambiguities arising from excerpts of the report, the complete content as of the report release date shall prevail. It should be noted that this material only represents the judgment as of the report release date, and related analyses and forecasts may change according to subsequent research reports issued by Huachuang Securities Research Institute without notice. Other business departments or affiliates of Huachuang Securities may independently make investment decisions that differ from the opinions or suggestions in this material. The prices, values, and incomes of the securities or financial instruments referred to in this material can rise or fall, and past performance should not be seen as indicative of future performance. This material is for the reference of subscribers only and is not or should not be considered an offer or invitation to sell, purchase, or subscribe to securities or other financial instruments. Subscribers should not solely rely on the information in this material to replace their independent judgment and should make their own investment decisions and bear investment risks independently. Huachuang Securities will not be liable for any direct or indirect losses arising from the use of the information contained in this material.

The securities market research information contained in this material is generally based on specific assumptions and conditions, providing medium to long-term value judgments or investment suggestions based on “relative index performance,” and does not involve judgments on specific securities or financial instruments at specific price levels, specific time points, or specific market performances; therefore, it cannot be equated with targeted operational advice for specific investments. Ordinary individual investors should seek the guidance of professional investment advisors and related follow-up interpretative services if they wish to use this material. Huachuang Securities assumes no responsibility for any direct or indirect losses caused by improper use of relevant information.

Without prior written authorization from Huachuang Securities, no institution or individual may modify, send, or copy the content of this material in any way. Huachuang Securities has not granted any routine authorization for reprints to any online or print media. Except for commissioned articles by media recognized by Huachuang Securities, all other reprint actions are illegal. If any direct or indirect losses are caused to Huachuang Securities due to infringement, Huachuang Securities reserves the right to pursue relevant legal responsibilities.

If subscribers have any questions or wish to obtain the complete content of the report, please contact the institutional sales department of Huachuang Securities or send an email to jiedu@hcyjs.com.

Huge amounts of information and precise interpretations are all available on the Sina Finance APP.