Merchandise Trade Analysis – June 2017
Gold and energy products drive exports down in June
After nearly a year of uninterrupted growth, Canadian exports turned abruptly downward in June, dragged lower by large declines in energy and precious metals. All told, Canadian exporters delivered $46.5 billion in goods to foreign buyers in June, down 4.3 per cent compared to May. The drop in exports was enough to wipe out four consecutive months of gains, suddenly bringing total exports to their lowest levels since February.
Lower exports, combined with a small increase in imports, drove Canada’s trade balance sharply down in June. From (a revised) $1.4 billion in May, the trade deficit expanded to $3.6 billion in June. That marks Canada’s largest monthly trade deficit since last September.
The decline in exports was the result of a mix of price and volume effects. The volume of Canadian goods sold abroad dropped by 1.6 per cent in June, while average prices were down by the same amount. While a number of industries saw overall trade volumes fall in June, the price effect was concentrated in the energy sector, as crude oil prices had turned lower that month.
Canadians paid less for imports in June as well, but bought more goods with their money. Import prices were down 1.2 per cent compared to May, but that decline was offset by a 0.8 per cent increase in volumes.
In spite of the decline in June, exports through the first half of the year are still tracking well above 2016 levels. With six months in the books, exports in 2017 are 10.6 per cent higher compared to the same period last year.
As noted above, the export losses in June were heavily concentrated in two areas – energy and precious metals. In the case of energy, exports of crude oil (-7.4 per cent), natural gas (-5.9 per cent) and refined petroleum (-10.7 per cent) were all down significantly compared to May. Declining crude oil prices are likely to keep a lid on energy export growth over the summer as well. In the case of precious metals, the story is a little different. Sales (primarily of gold) spiked in May – rising by nearly 48 per cent compared to April. The 32-per cent drop in June simply brought exports down to more normal levels.
Although the largest declines were in energy and precious metals, export weakness was remarkably widespread in June; foreign sales were down in nine of the eleven major product categories. Only aerospace (up 12.3 per cent) and industrial machinery (1.5 per cent) exporters saw business increase that month.
In terms of major export destinations, the largest decline on a dollar-value basis was in exports to the United States. Southbound deliveries fell by more than $1.6 billion compared to May, accounting for more than three quarters of Canada’s overall decline in exports in June. Exports to the United Kingdom – Canada’s primary market for gold – were also down significantly (nearly $500 million), as were sales to Japan ($273 million).
In terms of imports into Canada, the results were mixed, with gains in five major product categories offsetting losses in the other six. The largest increase was in imports of metal ores ($360 million), while imports of aerospace products ($246 million) and electrical/electronic goods ($115 million) were higher as well. However, Canadians imported fewer motor vehicles, consumer goods and energy products in June.
