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February Survey of Manufacturing sees industrial prices rising

Ottawa, ON -- Industrial prices spiralled upwards in February 2004, contributing to a 0.8% rise in shipments to $45...


Ottawa, ON — Industrial prices spiralled upwards in February 2004, contributing to a 0.8% rise in shipments to $45.8 billion, the highest level since September 2003, Statistics Canada reports.

Canadian manufacturers will likely face challenges ahead as prices continue to rise. Soaring demand for lumber and raw steel contributed to significant price gains in recent months.

Meanwhile, the Organization of Petroleum Exporting Countries (OPEC) recently proposed to cut back crude oil production as of April 1. The possibility of a reduction to production quotas, in an industry currently facing strong demand, has sent petroleum prices to near record levels.

The Canadian dollar eased back somewhat in February following the decade-high levels of January. Although manufacturers seem to be holding their own, absorbing some of the higher costs attributed to the appreciating dollar, this factor remains a cause for concern. More than 50% of Canadian manufactured products are destined for markets abroad.

In February, higher prices pulled up shipments of nondurable goods by 1.1% to $19.5 billion, the fourth increase in a row. Manufacturers of durable goods reported a 0.6% rise in shipments, making up some of the ground lost in January (-1.3%). In total, 12 of 21 industries accounting for 54.0% of total shipments, reported increases.

Six provinces, led by Alberta, reported higher shipments in February.

Manufacturers of computers (+10.5%) and fabricated metal products (+5.3%) reported strong activity in February, while higher prices contributed to gains in the petroleum (+3.9%) and wood products (+4.1%) industries.

Volatility continued in the manufacturing of computer and electronic products. In February, shipments rebounded to $1.7 billion, following successive losses in December (-0.8%) and January (-7.8%). Canada’s telecommunications sector remains tepid, despite a rebound in manufacturing by their US counterparts, where shipments have soared 17.5% in the first two months of 2004.

Meanwhile, various subindustries of fabricated metal products manufacturing contributed to the 5.3% boost in shipments to $2.6 billion. This represented a partial recovery from January’s steep drop (-6.5%).

Shipments of petroleum and coal products jumped 3.9% to $3.3 billion in February, the highest level since March 2003. Rising prices for crude oil, partly caused by strong global demand and a possible cut in production quotas, contributed to the boost in the value of petroleum shipments.

Wood products manufacturing jumped 4.1% to $2.7 billion, the highest level in three months. The ongoing construction boom in Canada and the United States continued to generate heavy demand for wood products, and contributed to recent price gains. Wood product prices have soared almost 10% since December.

Offsetting some of February’s increase, manufacturers of transportation equipment reported fewer shipments. Motor vehicles shipments fell 3.1% to $5.4 billion, while production of aerospace products and parts decreased a substantial 14.1% to $863 million. Both industries reported successive increases in December and January.

In February, inventories fell another 0.8% to $58.0 billion, the ninth decrease in the past 10 months. A significant drop in goods-in-process inventories (-3.2%), coupled with lower raw materials (-0.6%), were the factors behind the overall decline. Finished-product inventories were up 0.6% to $20.2 billion, the first increase since April 2003.

The decrease in inventories was concentrated in the durable goods industries, with aerospace (-11.8%), computers (-2.4%) and railroad rolling stock (-9.9%) contributing.

The inventory-to-shipments ratio stood at 1.27 in February, the lowest level in just over four years. The ratio, which eased back from 1.29 in January, has been trending down since early last year as manufacturers kept inventories in check, along with a gradual improvement in shipments.

The ratio is a key measure of the time measured in months that would be required in order to exhaust inventories if shipments were to remain at their current level.

Bolstered by the signing of several new contacts in the aerospace products and parts industry, total unfilled orders increased 0.6% to $36.1 billion in February, which followed January’s 2.8% advance. Excluding aerospace manufacturing, unfilled orders actually decreased 0.3%.
The trend for unfilled orders turned positive for the first time since mid-2001.

Aerospace products and parts manufacturers reported unfilled orders of $12.3 billion in February, up 2.4%. This marked the third consecutive increase for the otherwise beleaguered industry. The machinery (+4.8%) and fabricated metal products (+4.5%) industries also reported increases. A sharp decline in the computer and electronic products industry (-10.6%), partly offset the overall increase in unfilled orders.

Following solid gains in December (+2.4%) and January (+2.5%), new orders fell back 0.8% to $46.0 billion in February. Weaknesses in computers, motor vehicles and aerospace products and parts manufacturing contributed to the drop.