MRO Magazine

Canadian manufacturers see better results in September

Ottawa, ON -- Higher shipments, rising orders, and the fifth successive decline in inventories were the highlights...


Industry

November 19, 2003
By MRO Magazine

Ottawa, ON — Higher shipments, rising orders, and the fifth successive decline in inventories were the highlights reported by Canadian manufacturers in September, as Ontario rebounded from the effects of August’s electrical blackout, according to the September 2003 Monthly Survey of Manufacturing by Statistics Canada.

Shipments soared 5.2% to $43.0 billion in September, the highest level since March.

In September, manufacturers made up lost ground from the adverse impact of the electrical blackout of Aug. 14. The Ontario economy was notably affected by the power outage and the following week of energy conservation. Assembly lines were shut down, plants and offices worked on reduced schedules and refineries closed. August’s 4.9% decrease in total shipments was a one-time occurrence, largely due to the blackout.

Increases were broadly based in September, as 17 of 21 manufacturing industries, representing 84% of total shipments, reported higher production. Ontario’s rebound (+$1.8 billion) from the blackout led the nine provinces reporting increases in September. Even excluding Ontario’s significant impact on the Canada total, manufacturing shipments still rose a healthy 1.8%.

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Quebec (+$177 million), British Columbia (+$71 million) and Saskatchewan (+$38 million) also reported strong increases in September.

Despite the upbeat tone of the September report, manufacturers were left with a dismal third quarter, rocked by the blackout in August. Shipments declined 0.4% in the third quarter, following a 3.9% drop in the second.

However, manufacturers reported an 8.0% rise in new orders to $43.4 billion in September. This marked the third increase in the past four months for new orders, a possible good omen for future prospects. Widespread increases were reported, including motor vehicles, computers and aerospace manufacturing.

Motor vehicles (+16.2%), chemical products (+9.5%), computer and electronic products (+17.0%) and automotive parts (+7.1%) manufacturing were among the majority of industries reporting significant gains in September.

In September, manufacturers trimmed another 0.7% from inventories, the fifth consecutive decline. Inventories were $60.9 billion, the lowest level since April 2000 ($60.8 billion). Manufacturers have successfully reduced inventory levels in recent months. Inventories were down 4.7% from April’s recent high of $63.9 billion. All three stages of fabrication, including raw materials (-1.1%), goods-in-process (-0.7%) and finished-products (-0.2%), declined in September.

Manufacturers’ finished-product inventories, which have been trending down throughout 2003, edged back to $19.0 billion in September, a 13-month low. Although lower levels of finished-product inventories are encouraging, the recent appreciation in the value of the Canadian dollar may be a key obstacle to further advances in demand from the United States, Canada’s largest trading partner. This could hinder further reductions in finished-product inventories. The main contributors to September’s decrease included primary metals (-3.0%), aerospace (-1.6%) and petroleum and coal products (-7.3%).

Strong shipment activity coupled with lower inventories contributed to a notable drop in the inventory-to-shipment ratio to 1.42 in September from August’s 1.50, the high for the year. The ratio has been quite volatile in recent months, the result of ongoing fluctuations in demand and the impacts of several external shocks. Since late 2002, the inventory-to-shipment ratio has been edging up.

The finished-product inventory-to-shipment ratio fell back to 0.44 in September from 0.47. September’s solid rise in shipments surpassed the much smaller decline in finished-product inventories. The trend, which had been rising since mid-2002, has shown a more moderate movement in recent months.

The finished-product inventory-to-shipment ratio is a measure of the time that would be required in order to exhaust finished-products if shipments were to remain at their current level.

Burdened by lacklustre demand and order cancellations since mid-2002, unfilled orders have weakened substantially in the last year. In September, manufacturers posted the first increase (+1.1%) in unfilled orders in over one year, to $38.8 billion.

Several industries benefited by September’s rise in unfilled orders. A recent string of new order announcements by telecommunications manufacturers resulted in a 10.8% jump in unfilled orders for the computer and electronic products industry. Orders were $4.0 billion, the highest level in six months. The fabricated metal products (+6.4%) and plastics and rubber products (+14.1%) industries also reported strong increases in September.

Another noteworthy factor in the rise of unfilled orders was the aerospace products and parts industry. Since late 2001, aerospace manufacturing had been pummelled by the downward spiral of the global aviation market. In September, Canadian aerospace manufacturers eked out the first increase in unfilled orders since August 2001. Orders rose 0.4% to $11.3 billion.