Canadian Manufacturing

Taking the pulse of Canadian exports

Many sectors are rebounding from the 2012 decline, but weakness persists



Looking at Canada’s export history over the past several years, it’s apparent 2012 was a terrible year. In all major segments of our exports, such as motor vehicles and parts, consumer goods, metal ores and non-metallic mineral products and others—we experienced difficulties.

On the positive side, exports of crude oil, bitumen and refined petroleum products—our biggest export segments— were among the few making progress. The energy sector posted healthy growth up to 2013. Forestry products, building and packaging exports also posted healthy growth in 2013, along with consumer goods.

On the neutral or negative side were basic and industrial chemicals and plastic. Motor vehicles and parts exports stagnated through 2012 and 2013, along with aircraft and other transportation equipment exports, industrial machinery and equipment, and electronic and electrical equipment.

However, recent data point to more positive trends. From June 2013 to June 2014, the only negative postings are found in electronic and electrical equipment exports, basic and industrial chemicals, and plastic and rubber exports; along with aircraft and other transportation equipment.

All other sectors have posted positive export growth. In fact, in June 2014 the merchandise trade balance was $1.9 billion, since we exported merchandise for the value of $45.2 billion and imported merchandise at a value of $43.3 billion.

So what’s driving Canadian exports?
Many fundamentals have changed with the rising Canadian dollar. We’re seeing shifts in global demand for our resources, higher international demand for the loonie, a lack of housing price correction, and worrisome weakness in Canadian manufacturing.

The strength of the US economy—with the US dollar’s status as a “safe haven” in turbulent times—are the only two external factors contributing to the lower value of the Canadian dollar in the USD/CAD pair. As long as the greenback increases its value, our loonie will drift downwards.

On the reverse side, if the greenback stagnates or declines, our loonie will increase in value. Fortunately for our economy, which requires a lower loonie to increase exports, adjustments in the EUR/USD pair are leading to increased value of the USD.

Demand for our resources creates growth in our economy but an uptick in commodity prices increases the value of the loonie. The exports of our commodities to emerging markets has provided a boost to our loonie even through a period of stagnating exports to the US.

Exports of crude oil and related products form the backbone of our economy, giving rise to a stronger loonie. But changes in the global oil market are slowly leading us towards constraint.

From the supply side, the US—our long-term buyer of crude oil—is expected to become the biggest producer of oil in 2015. In fact, US crude oil exports have reached their highest levels in the last 15 years in April, 2014. Almost all the crude oil exported from the US has been delivered to Canada, according to the US Energy Information Administration.

The US’s strategic move to increase oil production shakes the market at a level comparative to an earthquake of 7.O on the Richter scale. Under US leadership, the prices of oil linger in the low US$90 range, due to lower demand. Strategic US positioning in crude oil production negatively impacts Canadian crude oil and bitumen exports.

We’re also seeing relatively lower demand for oil in both the US and China. Many countries around the world, including the US and China, are experiencing rather modest growth of their economies. Their manufacturing industries are their biggest consumers of oil, and they’re lagging behind due to lower demand for manufactured products.

The lower demand for Canada’s crude oil and bitumen will put a smile on Canadian manufacturers’ faces though, since it will lower the value of our loonie and provide support for our exports.

Darek Wozniak is president of JW Investrade, a currency exchange consulting firm in London, Ont. He may be reached via email.

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