Oil extraction prices rally thanks to a cold winter and lower US inventories
May 9, 2013
by PLANT STAFF
OTTAWA — Profits were up in April thanks to strong showings in forestry products, oil and gas extraction, agriculture and retail services, according to the Conference Board of Canada’s Leading Indicator of Industry Profitability Index.
The Ottawa-based research firm said the index advanced 0.2%, pointing to modest corporate profit growth in the near term.
Of the 49 industries covered in the index, 25 recorded declines. With a sizable number of industries still facing a weak profit outlook, the Conference Board says the overall corporate profitability index remains vulnerable to any unexpected shocks.
Here are some highlights:
• Retail sales, which help to drive related manufacturing, have risen since January, with gains noted in the general merchandise stores, food and beverage stores, and miscellaneous retailers subsectors. Food and beverage, clothing and textile manufacturing also saw their indexes improve during the month.
• The index for the oil extraction industry jumped 0.9% thanks to higher prices for oil and natural gas. A larger-than-expected decline in US gas inventories and a North American winter that was longer and colder than expected helped to rally prices.
Price discounts between cheaper Canadian heavy crude and the North American benchmark West Texas Intermediate crude narrowed to $15 a barrel in March. The price differential had been as high as nearly $43 per barrel just four months earlier. Since then, some short-term effects (such as the end of the temporary shutdown of BP’s heavy-oil refinery at Whiting, Ind.) have helped to bridge the difference.
Canadian producers have also been bypassing a pipeline bottleneck by moving record amounts of crude by rail to US refineries. According to the National Bank, about 5% of total rail traffic in Canada is designated for shipping crude, a tenfold increase from just three years ago.
Both Canadian Pacific Railway and Canadian National Railway expect the greater use of “rail pipelines” to continue.
• Lumber prices are rising sharply, and in April reached their highest level since August 2004, according to the Random Lengths composite price index.
The Conference Board says Canadian wood product prices are supported by growth in the US housing market fuelled by a spike in construction spending, rising home prices and fewer foreclosures.
However, wood products profitability index fell for the first time in 10 months in April because of a shortage of rail cars, which is holding up shipments to the US. The Conference Board says this will continue until at least the third quarter, when new freight cars are to be added.
• The mining industry’s profitability index has declined for the past eight months. Industrial metal prices have experienced sharp falls recently, in part from weaker Chinese demand. Copper dropped to US$3.20 a pound, down 16% since the beginning of the year. China accounts for roughly 40% of global copper consumption, 50% of global steel production, and two-thirds of global demand for seaborne iron ore.
Gold prices also suffered their largest plunge in more than 30 years in April because of low inflation and weakening investor demand.