Recovery on the way for Canadian manufacturers, Conference Board says
Production in several hard-hit Canadian manufacturing industries is expected to improve in 2010. It will, however, take until 2011 for some industries to experience an increase in profits or to emerge from the red, according to the Canadian Industrial Profile – Summer 2010, published by the Conference Board of Canada, in collaboration with the Business Development Bank of Canada (BDC).
The summer edition provides a five-year (2010-2014) production, revenue, cost and profitability forecast for six Canadian industries: aerospace products; furniture products manufacturing; motor vehicle parts; paper products manufacturing; printing services; and wood products manufacturing.
"Some of the manufacturing industries analysed in this report faced declining production before the recession, and the downturn only made matters worse," said Michael Burt, associate director, Industrial Economic Trends, with the Conference Board of Canada. "Not every industry is at the same point in their recoveries, but improved profitability can be expected as demand grows and the cost-cutting implemented during the recession starts to help the bottom line."
According to the report, production of aerospace products slowed abruptly in the second half of 2009, and is expected to weaken again in 2010. As a result, industry profits are forecast to decline by 35 percent to $269 million this year. The good news is that demand seems to be picking up, which bodes well for the industry’s performance over the next four years.
Even before the recession, cheaper international furniture led to declining Canadian production levels for most of the past decade. Cost reductions kept the industry in the black despite the recession, and profitability is forecast to improve modestly, but foreign competition will remain fierce.
Auto parts makers are expected to lose money for the third consecutive year in 2010, but a projected loss of $41 million is much smaller than those incurred the previous two years. U.S. vehicle demand is gradually recovering, and cost-cutting measures implemented during the recession are improving the bottom line to the extent that the industry is expected to be profitable in 2011, according to the report.
Paper producers lost $3 billion in the past two years, but more modest losses of $139 million are expected in 2010. Sales and production are trending upward, and profits of $366 million are forecast in 2011. Within the industry, the recovery will be uneven – some segments of the industry are expanding, while others continue to shrink in size.
Printers are facing technological changes – primarily from the shift to online publication – as well as environmental concerns, which limits the industry’s long-term growth prospects. Nevertheless, industry profitability is expected to grow to $240 million in 2010, compared to last year’s low of $210 million, and profits will increase modestly thereafter.
Three consecutive years of major losses for wood producers will come to an end in 2010, and profitability is forecast to reach $1 billion as early as 2012. The gradual recovery in the U.S. housing market and increased exports to China will both contribute to growth in the industry.
The Canadian Industrial Profile Service is part of the Conference Board of Canada’s Industrial Economic Trends research. In all, outlooks for 23 industries are completed each year. The publications are available at www.e-library.ca.