Merchandise Trade Analysis – September 2016

One-time delivery of offshore oil equipment triggers record trade deficit in September

After a modest improvement in Canada's export performance and trade balance over the summer, things took a sharp turn for the worse in September. Exports were essentially flat that month, rising by just 0.1 per cent to $43.5 billion. Sales volumes were down compared to August, but that was offset by the fact that exporters received higher prices for their goods.

Canadian Trade Summary
  Jul-16 Aug-16 Sep-16
Value ($billions)
Exports 43.2 43.5 43.5
Imports 45.2 45.5 47.6
Trade Balance -3.9 -2.0 -4.1
Percentage change
Export prices 1.2 0.4 0.7
Export volumes 4.2 0.3 -0.8
Import prices 1.4 -0.9 1.1
Import volumes -0.3 1.0 2.2

Imports, however, jumped 4.7 per cent to reach $47.6 billion in September. As a result, Canada's trade deficit, which exporters had been chipping away at over the past few months, suddenly plunged to a new all-time low of $4.1 billion.

Canadian Merchandise Trade

The good news is that all this is the result of the delivery of a single piece of equipment - a utilities and process module made in South Korea for use in the Hebron offshore oil project off the coast of Newfoundland and Labrador. That single delivery drove up Canadian imports by an estimated $2.9 billion in September. Removing it from the equation, imports actually fell by an estimated 1.7 per cent, and the trade deficit would have been around $1.2 billion. Import of autos and parts, aerospace equipment and consumer goods were all lower, as were purchases of foreign metals and mineral products.

Canada's International Trade Balance

Even though the trade deficit is slowly falling (setting aside the exceptional circumstances in September), Canada's exporters are still struggling to sell their goods in foreign markets. In spite of a more competitive exchange rate, exports through the first three quarters of 2016 are down 2.2 per cent compared to the same period last year.

Those numbers are likely to improve as 2016 draws to a close. Most of the decrease this year can be pinned on the impact of lower commodity prices on exports of energy products, as well as on metals and minerals exports. However, thanks to higher sales volumes and a modest increase in prices, energy exports are back on the upswing, growing by nearly 15 per cent in the third quarter of the year. So long as prices remain stable, this trend should continue for the final quarter of the year.
Looking at specific industries, Canada's export performance was mixed in September. On the positive side, deliveries of aerospace equipment, electronics and energy products were all higher. Those gains were entirely offset, however, by declines in shipments of primary metals/minerals, as well as fabricated products made from those same materials.

export growth by product type

Year-to-date, the story is a little different. With three quarters of the year in the books, it is motor vehicles and parts, as well as consumer goods that have been the good-news stories in Canadian exports. Vehicles and parts sales are up 14.4 per cent compared to the same period last year, while consumer goods exports are 7.8 per cent higher. As noted above, those gains have been counteracted by weaker year-over-year commodities exports.

In terms of export destinations, there was a strong increase in sales to several European Union countries in September, led by the UK ($175 million), France ($81 million) and Italy ($63 million). Exports to India ($147 million), Australia ($65 million) and Turkey ($54 million) were also higher. Meanwhile, sales to the US were down about $207 million compare to August, while exports to China were lower by about the same amount. Shipments to Japan and South Korea were also down in September.

Canada's top growing export markets

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