Industrial capacity utilization rates

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Canadian industries slightly increased the use of their production capacity during the first quarter of 2007, halting four consecutive quarters of decline.

Capacity utilization edged up from 82.4% in the fourth quarter of 2006 to 83.0%. This level was 3.0 points below the rate posted in the fourth quarter of 2005, before the quarterly drops observed in 2006.

The industrial capacity utilization rate is the ratio of an industry's actual output to its estimated potential output. For this release, rates have been revised back to the first quarter of 2005 to reflect the revised source data.

Production rose slightly in the large manufacturing sector, but capacity use remained unchanged, tempering the first-quarter increase.

Gains in production in February and March were just enough to offset the substantial decline in production in the manufacturing sector in January. Automotive production had plunged by almost 12% in January, as a result of declining demand for light-duty motor vehicles and heavy trucks.

Nonetheless, manufacturers remain optimistic in their production outlooks. According to the April 2007 Business Conditions Survey, they planned to increase production in the second quarter.

Three other sectors (forestry and logging, mining and oil and gas extraction, and electric power) posted good results, and together accounted for the increase in industrial capacity use in the first quarter. The only sector to post a lower rate in the first quarter was the construction sector.

Manufacturing sector halts three straight quarterly declines

After three consecutive quarterly decreases, the capacity utilization rate for the manufacturing sector remained unchanged at 81.1%, the same level as in the fourth quarter of 2006.

Among the 21 industry groups in the manufacturing sector, 14 recorded an increase in industrial capacity utilization. Higher rates in the primary metal, chemical products and fabricated metal products industries were offset by lower rates in the food, plastic and rubber products and wood products manufacturing industries.

Strong export demand for primary metals in Asia and the dizzying rise in nickel and copper prices led to a 2.1% production increase in the first quarter. The rate of capacity use for primary metals rose from 89.2% in the fourth quarter of 2006 to 91.5% in the first three months of 2007.

In the chemical products manufacturing industry, capacity utilization reached its highest level in more than four years (84.5%), up 1.5 points from the previous quarter. Despite the negative impact of the railway strikes, which disrupted the supply chain for chemical product manufacturers in February, production rose by 1.3% in the first quarter.

Production of fabricated metal products was 2.0% higher in the first quarter, as output increased for the majority of primary components of this industry group. After posting three straight quarterly decreases, the rate rose by 1.4 points to 79.4%.

Food manufacturers greatly reduced their capacity utilization, from 79.7% in the fourth quarter of 2006 to 77.0% in the first quarter of 2007. This was the food industry's lowest rate since the second quarter of 1990, when it was 76.8%. The majority of the main components in this industry group, canned fruit and vegetable manufacturers in particular, accounted for the 2.2% decline in production for this industry.

Manufacturers of plastic and rubber products posted a fifth consecutive quarterly decline in their rate. Capacity utilization was 70.2%, down from 72.9% in the previous quarter. Production fell 12.4% for tire manufacturers, reflecting the weakness in automotive production as most of the demand for automotive products was met by inventories. This decline was responsible for much of the 2.3% decline in production in plastic and rubber products.

A dampening of foreign demand for wood products resulted in a 1.1% decrease in production in the first quarter. Accordingly, capacity utilization fell 1.6 percentage points to 76.4%. This was the lowest rate posted by this industry since the first quarter of 1992, when the rate was 76.1%.

Increase for majority of other sectors

Capacity utilization in the forestry and logging sector reached 88.1% in the first quarter, up from 82.2% in the previous quarter. Production rose by 6.0% in the first quarter, as milder weather allowed for more cutting than usual in January.

In the electric power sector, capacity utilization posted its strongest increase in over two years, as the rate rose from 83.3% to 86.6%. The return to more seasonal temperatures in February pushed up the demand for electricity, and production in this sector rose by 3.6% in the first quarter.

In the oil and gas extraction sector, crude oil production rose in response to foreign demand, while the increase in natural gas production served to replenish stocks. Accordingly, industrial capacity utilization rose by 2.1 points to 83.6%.

In the mining sector, the rate edged up from 82.1% to 82.8% during the first three months of 2007, owing to an increase in non-metallic mineral mining (including diamonds). Coal and metal mines reduced their production activities in the first quarter.

The construction sector alone used less of its production capacity in the first quarter. The rate slipped from 86.2% to 85.9%, as an increase in production capacity exceeded the growth in production.

Available on CANSIM: table 028-0002.

Definitions, data sources and methods: survey number 2821.

Data on industrial capacity utilization rates for the second quarter will be released on September 13.

For more information, or to enquire about the concepts, methods or data quality, contact Mychèle Gagnon (613-951-0994) or Michel Labonté (613-951-9690), Investment and Capital Stock Division.

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