Merchandise Trade Analysis - May 2017

Industrial goods drive export gains in May

May was yet another good month for Canadian exporters. Buoyed by strong sales of precious metals and industrial goods, exports rose by 1.3 per cent compared to April to reach $48.7 billion - their third consecutive all-time monthly high. The increase in May builds on a strong showing in each of the previous two months - one where past data releases underestimated the amount of trade taking place. The 3.2 per cent increase in exports in March was revised to 3.4 per cent, and April's 1.8 per cent increase was adjusted to 2.2 per cent.

Meanwhile, driven by a spike in aerospace deliveries, imports were up 2.4 per cent in May, reaching $49.8 billion. As a result, Canada's trade deficit widened from about $570 million in April to $1.1 billion in May. Canada has posted negative trade balances in each of the past four months, but those deficits are a fraction of their size at this same point last year.

On both the import and the export sides, trade growth in May was primarily driven by higher volumes. Export volumes were up 1.2 per cent, supported by a 0.4 per cent increase in export prices. The story was similar on the import side. Volumes were 1.8 per cent higher compared to April, although that was largely because of a 42 per cent jump in aerospace deliveries. Meanwhile, import prices rose by 0.5 per cent.

All told, 2017 continues to be a strong year for Canadian exporters. International sales in May were nearly 18 per cent higher than they were at the same time last year. And total exports through the first five months of the year are 10.6 per cent higher compared to the January-May period of 2016.

At the industrial level, gains were relatively widespread, with most major product categories recording higher exports. Leading the way were exports of precious metals and alloys, which spiked up by 43 per cent compared to April, with most of that going to the United Kingdom. Industrial machinery and equipment exports were 9.0 per cent higher. There were also solid gains in agriculture and intermediate food products (up 7.6 per cent), aerospace (5.5 per cent) and motor vehicles and parts (3.6 per cent).

On the negative side, lower sales of iron and copper sent metal ores exports down by 7.5 per cent, while a combination of lower prices and a supply disruption in northern Alberta drove crude oil exports to their lowest level since October. There was also a notable drop in forest products exports as the US-imposed 19.88 per cent countervailing duty on softwood lumber took effect. Exports of forest products may drop further in June as an additional 6.87 per cent dumping duty was imposed last month.

Two countries accounted for most of Canada's export gains in May: the United Kingdom and Japan. While Canada's total exports increased by $635 million, sales to the UK were up by $693 million (48.2 per cent), while exports to Japan rose by just over $300 million (30.0 per cent). There were also strong gains in exports to Hong Kong, Brazil and Australia.

Exports to most other major destinations were flat or negative. The combination of lower energy prices and softwood lumber duties had a predictable effect on Canada-US trade - southbound exports fell by 0.3 per cent in May. Exports to China, Mexico, South Korea and India were all down as well.

As noted above, the growth in imports into Canada was almost entirely the result of a 46 per cent spike in aerospace deliveries (from the United States). Canadians also bought more foreign motor vehicles and parts (up 3.7 per cent), and refined petroleum (up 16.4 per cent). Meanwhile, imports of consumer products imports were down (down 1.8 per cent), as were imports of primary metals and minerals (down 8.3 per cent).

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