Profitability edges up for wood products, but other industries lag

Conference Board of Canada says index in line with sagging global economic growth.

October 9, 2012

OTTAWA — The outlook for profits is improving for one segment of the manufacturing sector but sagging for others, according to a Conference Board of Canada index for September.

The Ottawa think tank’s Leading Indicator of Industry Profitability rose by 0.2% to 103.2, only the third gain in the past 16 months bringing the overall index to its highest level in 11 months, but below where it was one year earlier.

The Conference Board says profit performance is in line with a stalling Canadian economy weighed down by the recession in much of Europe, a weak economic recovery in the US and slowing growth in China. However, there is “considerable variation” in performance among the various industries.

An improving US housing market and China’s appetite for wood has meant gains in five of the past six months for wood products manufacturers. In July, the value of Canadian exports to all countries increased 20% from 2011 to $800 million. The Conference Board said exports to the US surged 41% compared with the same month last year.

Analyst Lin Ai wood says product prices have also increased, reaching their highest level since February 2007. Tighter supplies because of the mountain pine beetle infestation in BC and provincial restrictions in the annual allowable cuts in Ontario and Quebec should lead to even higher prices later this fall and into next year.

Agriculture and forestry, gas extraction, chemical manufacturing, computer and electronic product manufacturing, food and beverage stores, telecommunications and other financial services are below where they stood a year ago.

Ai notes gas extraction has been dealing with tough market conditions as competing US production increased for the seventh consecutive year in 2012 and North American demand remains soft. As a result, inventory levels are high and prices are weak.

Chemical manufacturing, Canada’s third largest exporter with 75% of its production destined for the US, has lost considerable ground recently, says Ai. It’s index has declined in four of the past six months because of a slowing economy global economy. Sales have dropped 5 per cent since April and industry prices have fallen 4 per cent.

Exports of chemical products to the US have declined by 12% since April.

Ai suggests the decline is as result of growing construction of chemical plants along the US Gulf Coast that are taking advantage of the extremely low prices for natural gas.