Manufacturing shipments fall again but inventory remains a problem

by Canadian Shipper

Shipments in Canada’s manufacturing sector fell 1.8 percent in in December to $40.4 billion, marking the third significant decrease in four months, the latest Statistics Canada report indicates.

Shipments have dropped 12.3% from their peak of $46.0 billion in October 2000.

However, inventories are still not in sync with the reduced demand. Manufacturers’ inventories, which slipped 0.4% in December, have declined only 2.9% since October 2000.

Looking ahead, manufacturers expressed continuing dissatisfaction with finished-product inventories in Statistics Canada’s January 2002 Quarterly Business Conditions Survey.

The survey showed that almost one-third of manufacturers thought their finished-product inventory levels were still too high, and more than one-third expected to reduce production during the next three months. As well, one-quarter of manufacturers reported their workforce would decline.

In December, 15 of 21 industries, representing 84% of total shipments, lost ground. Inventories fell 0.4% to $62.8 billion, the seventh consecutive decline, and finished-product inventories dropped 1.0%.

"Despite the significant cut in shipments and the string of decreases in inventories, manufacturing stocks remain excessive – in December, the inventory-to-shipments ratio leaped to 1.56, nearing its nine-year high," Statistics Canada comments in its Daily Bulletin. "As the economy slowed in 2001, manufacturers cut production sharply, but inventories were slower to respond, resulting in a rising ratio in recent months."

The finished-products inventory-to-shipment ratio also stayed constant for a second month at 0.48. This ratio had been rising since mid-2000.

The shipments decline was widespread with several industries contributing to December’s drop off.

The chemical products industry reported a 5.7% decrease to $2.8 billion, the lowest value since April 2000. Shipments fluctuated over the second half of 2001. December’s loss reversed the industry’s gains of October and November.

Widespread decreases resulted in a 5.9% drop in shipments in the fabricated metal products industry to $2.1 billion. December’s shipments were the lowest since mid-1999.

Paper manufacturing also fell 4.7% in December, following a 1.7% drop in November. Continued market uncertainty and lower industrial prices for pulp and paper products (-1.3% in December) contributed to the decline.

Manufacturers of petroleum and coal products reported shipments of $2.2 billion, a decrease of 3.5%. Slumping industrial prices for petroleum and coal products, down 26.9% over the course of 2001, contributed to the industry’s decline.

As well, several refineries operated at reduced capacity because of maintenance shutdowns over the latter half of 2001.

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