OTTAWA – A rebound in Canadian exports has led industries ever closer to a record high use of their production capacity, a new Stats Canada report has found.

Industries operated at 86.9 percent of capacity during the third quarter of 2005, up from 86.5 percent in the second. The gain is just a fraction below the record peak of 87.6 percent in the first quarter of 1988.

The rebound in exports — especially the strong gain in automobile products due to incentive-based sales growth in the U.S. — fuelled a gain in capacity use in the manufacturing sector, according to the report. A 7 percent jump in automotive exports helped push up total exports by 2.5 percent.

Manufacturers also benefited from a decline in raw materials prices.
In addition, the number of manufacturers planning to increase production in the fourth quarter was slightly higher than those planning cutbacks. However, lack of capacity remains a problem for some manufacturers.

Forestry and logging and mining sectors, with substantial increases in their rates, have also contributed to the advance in capacity utilization in the third quarter.

Use of production capacity among manufacturers edged up from 85.8 percent in the second quarter to 86.1 percent in the third. Only 9 of 21 major manufacturing groups increased capacity utilization, although these nine accounted for more than half the sector’s total production.

The sector’s strong results are attributable to manufacturers of transportation equipment, chemical products, primary metal products, and plastic and rubber products. The rise in the rate was moderated somewhat by reductions in the capacity use of manufacturers of wood products, fabricated metal products and food, Stats Can states.

After three straight quarters of declining capacity utilization, chemical product manufacturers increased their industrial capacity use from 81.0 to 83.0 percent. Higher production among most of the main components of this group accounted for the 2.5 percent gain in output in this industry.

In the primary metals manufacturing industry, the rate increased from 90.3 to 92.5 percent. This was the highest rate posted by this industry since the fourth quarter of 2003 when it reached 93.3 percent. Much of the increase in production for this industry can be attributed to manufacturers of aluminum and steel.

Conversely, manufacturers of wood products reduced their use of capacity, as the rate fell from 92.7 to 89.7 percent. The wood export market has slowed in 2005 and prices for lumber are down sharply, the report states. It is expected that U.S. demand will strengthen when rebuilding begins along the hurricane-ravaged Gulf Coast.

Among food manufacturers, the rate was 81.8 percent, down from 83.1 percent — the largest reduction since the second quarter of 2003, when concerns over mad cow disease resulted in a 1.6-percentage-point decline in the rate to 79.1 percent.

There were much more mixed results in other sectors. In the forestry and logging industry, the capacity utilization rate rebounded 7.2 percentage points to 96.0 percent, driven by a 10.5 percent increase in production.

Capacity utilization rose from 94.3 percent to a record high of 98.5 percent in the mining sector, as production increased 7.4 percent.
In contrast, the oil and gas extraction and construction sectors experienced declines in their rates, as the increase in production capacity exceeded growth in production. The rate fell from 80.9 to 80.2 percent, while in the construction sector it was 87.0 percent, down from 87.6 percent.