Investment in mining and oil and gas stimulates manufacturing, study finds

Massive investment in the oil and gas and mining sectors is fuelling growth in industries ranging from manufacturing to engineering, according to the Canadian Industrial Profile-Spring 2012 published by The Conference Board of Canada in association with 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, professional services and textiles and apparel.

“It is interesting to note that 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, said in a statement. “In addition to 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 U.S. – a first since the end of the recession. Despite the strong dollar, which is an ongoing challenge to the competitiveness of businesses, and the uncertainty created by the eurozone debt crisis, the outlook is positive for many Canadian entrepreneurs.”

“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, industrial economic trends.

The Conference Board forecasts oil prices to remain high, at more than $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. However, fierce competition within the industry is expected to keep profit margins thin, and employers in Western Canada are again facing labour shortages – which will drive up wage costs.

Machinery manufacturing is seeing growth in exports to the United States 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.

Fabricated metal products are a key input into manufactured goods, such as machinery and equipment, and automobiles. The strong outlook for mining investment and the upturn in manufacturing output will allow the industry to 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.