Oil and gas investments fuel growth in manufacturing: CBOC
Oil prices expected to stay high, which will drive demand for finished goods and support activities, the report suggests.
Business Development Bank of Canada
Conference Board of Canada
OTTAWA: Massive investment in the oil and gas and mining sectors is fuelling growth in industries from manufacturing to engineering, according to a report by The Conference Board of Canada (CBOC) and the Business Development Bank of Canada (BDC).
The Canadian Industrial Profile provides a five-year (2012-2016) production, revenue, cost and profitability forecast for six industries each quarter.
The Spring 2012 edition includes forecasts for: electrical equipment, fabricated metal products, machinery manufacturing, oil and gas support activities and, textiles and apparel.
“The economic boom linked to oil and gas and mining activities is benefiting many industries – not only in Western Canada, but throughout the country,” said Pierre Cléroux, Vice President, Economic Analysis, at BDC. “The positive impacts related to the dynamism of the oil and gas and mining sectors, businesses in many manufacturing sectors are performing well thanks to the growth in exports to the US.”
The CBOC expects oil prices to remain high, at over $100 per barrel for the next couple of years, which will drive investment in the oil sands and support demand for firms to provide contract drilling and field support activities. Profits in the oil and gas support activities industry, which nearly quadrupled between 2009 and 2011, are forecast to double again in 2012 to $310 million. Fierce competition within the industry, however, is expected to keep profit margins thin, and employers in Western Canada are again facing labour shortages – which will drive up wage costs.
“Driven by high commodity prices, investment in the Canadian mining industry continues to grow at a robust pace. In addition to boosting the support activities for oil and gas industry, this investment boom will stimulate demand for machinery, fabricated metals and architecture and engineering services,” said Michael Burt, the Conference Board’s director of industrial economic trends.
Machinery manufacturing is seeing growth in exports to the US and a significant increase in demand for agriculture, construction and mining machinery equipment. Despite limited price growth, profits are forecast to exceed $1.9 billion this year, which would bring the industry’s bottom line back above its pre-recession level.
A strong outlook for mining investment and the upturn in manufacturing output will allow the fabricated metal products industry will continue its recent growth – profits are forecast to exceed $1.5 billion in 2012. However, the industry’s longer-term prospects are muted because it has made few inroads into emerging markets, where growth is expected to be much stronger than in North America.
In 2011, profits doubled in the electrical equipment industry thanks to strong export growth, especially to markets other than the US. Profits are expected to increase more than 26% this year to $443 million due to strong growth in overall non-residential investment in 2012. However the strong dollar and foreign competitors will continue to pose challenges to industry segments such as household appliances and lighting manufacturers.
The textiles and apparel industry continues to face the twin challenges of growing imports and a strong dollar, which makes profit margins exceedingly slim. The industry is forecast to post 2012 profits of $71 million, down slightly from 2011.
Pockets of growth in the industry can be found among those firms that successfully integrate producers from low-cost countries into their supply chains, and those companies that focus on high-end textiles and apparel.