Canadian industries cut back capacity utilization for third straight month

by Canadian Shipper

OTTAWA, Ont. — Canadian industries cut back their use of production capacity between July and September to its lowest point in three years, Statistics Canada reported this week.

Industries operated at 84.2% of their capacity during the third quarter, down from 85.1% in the second. It was the third consecutive quarterly decline and the first time since the third quarter of 2003 that the rate has fallen below 85.0%.

Gains in exports were not enough to offset the slowdown in demand for automotive products and the cooling residential construction market.
The third-quarter rate was 3.4 percentage points below the all-time high of 87.6% reached in the first quarter of 1988.

The industrial capacity utilization rate is the ratio of an industry’s actual output to its estimated potential output.

In the manufacturing sector, capacity use declined in 12 of 21 groups. Manufacturers suffered the impact of slowing foreign demand for automotive products and a downturn in residential construction. This had a negative impact on manufacturing companies that supply the housing market. Profits among manufacturing firms, except for petroleum and coal products, were down in the third quarter.

According to the October 2006 Business Conditions Survey, manufacturers are anticipating a decline in production in the fourth quarter.

Elsewhere, rates also fell in three sectors: forestry and logging, construction and electrical power. The only sectors outside manufacturing to post an increase in their third-quarter rates were mining and oil and gas extraction.

The mining sector benefited from strong demand in China and other export markets as well as low inventory levels. These pushed up prices for a number of metals to unprecedented levels. Metal mining companies posted record profits in the third quarter.

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