Dec 21 (Reuters) - Australian companies' profits are likely to grow for in the fiscal year ending June 2017, following two straight years of declines and supported by a pick-up in commodity prices as demand from China makes a steady recovery.
A Reuters average of analyst estimates and historical earnings of the top 138 companies by market capitalisation shows their profits are expected to grow by 9.8 percent in the fiscal year, the fastest growth in six years and reversing two consecutive years of declines. Analysts have upgraded the Australian companies' earnings over the next 12 months by 4.4 percent over the past month, the highest upgrade of any Asia-Pacific market.
Australian company profits fell 14 percent in the fiscal year ending June 2016, and by 0.2 percent in the fiscal year ending June 2015.
The earnings growth this year is likely to be driven by the metals and mining sector, whose earnings are expected to grow 42.1 percent, while utilities are expected to grow 12.4 percent, telecoms 11 percent and consumer companies by about 8 percent.
The improved earnings expectations are driven mainly by rising commodity prices such as coal and iron ore , which have roughly doubled this year. This helped the country's terms of trade rise 4.4 percent on-quarter in November, the highest growth in more than five years.
China, Australia's biggest importer, posted its strongest import growth in two years in November. It also posted the fastest rise in producer prices in five years. Analysts say the acceleration in upstream inflation would help the margins of Australian produce exporters.
"For the first time since the (global financial crisis) recovery in late 2009, the ASX 200 appears to be going through an earnings upgrade cycle," Goldman Sachs said in a note published this month.
Goldman said Australia is more exposed to positive reflationary forces through its commodity sensitivity and less exposed than other regional markets to the downside effects of rising U.S. interest rates, greenback strength and potential trade barriers.
Rising interest rates should also benefit local banks' net interest incomes: three of Australia's "big four" banks raised their lending interest rates this month.
Credit Suisse predicts ASX 200 companies' profits to rise by between A$10 billion to A$100 billion in 2017, with 32 percent of the rise coming from commodity producers, 30 percent coming from industrials, 17 percent from the big four banks and 21 percent from other financials.
Australian stocks are up 12.3 percent this year, compared with the average fall of 0.3 percent for Asia-Pacific markets, according to StarMine. Analysts predict the share price rises will continue and the ASX will reach 7,000 by the end of next year, with corporate earnings growth being a key driver.
Editing by Sam Holmes