BC Economic Snapshot Oct. 13, 2012

VANCOUVER, BC, Oct. 13, 12/ Troy Media/ – Top-line export volumes were nothing short of disappointing in August, but signs have emerged that that the rough patch may soon be over.

Total exports slumped 4.2 per cent from July to a seasonally-adjusted $2.52 billion to extend the general downtrend observed since late-2011. This was the sharpest single-month decline since January and pushed year-to-date activity down 1.7 per cent from same-period 2011 – the first negative reading of 2012. Declines were largely associated with declining product prices as estimated constant-dollar exports were still up about 1.2 per cent on a year-to-date basis.

Familiar themes from recent months persisted in August. Natural gas and industrial goods and materials exports pulled down activity as a supply-side gluts generated by a U.S. surge in shale-gas production continued to generate low price levels. Meanwhile, weak global economic and manufacturing trends have curtailed demand for commodities like coking coal and copper, softening prices.

Natural gas export dollar-volume was down 40 per cent through August from the same-period in 2011, reflecting a comparable drop in the price of B.C. natural gas from an average of $3.70 to during the first eight months of 2011 to an average of $2.25 this year. In contrast, real shipments (in cubic metres) to the U.S., which constitutes the only international export market for natural gas until liquefied natural gas infrastructure comes on stream, has remained consistent with same period 2011.

Sharp declines in gas prices have not only stunted export growth, but have also led to pressure on provincial government royalty revenues and caution on the part of companies in the exploratory phase.

While supply-side factors have been the bane of the natural gas industry, softness in the global economy continues to hamper exports of industrial goods and materials. A sharp drop in August pulled year-to-date dollar-volume exports of coal down 9 per cent from 2011, as shipment values to regions like Europe, Japan and South Korea were lower, offsetting gains to China.

Although coal is listed as an energy product, nearly all of B.C.’s production is metallurgical or coking coal exported for use in steel-making/hardening. In the general industrial goods and materials sector, which includes products such as copper and molybdenum, activity has trended lower on both lower prices and tempered shipments.


Outside of the energy and industrial materials sectors, export trends were stable. Manufacturing exports have continued to grind higher and have approached levels last seen in 2008. Forestry sector activity has also held steady with year-to-date export volume unchanged from 2011 in both current and constant-dollar terms.

The downtrend in exports is forecast to stabilize over the next quarter. Natural gas prices have been stable since July, with a seasonal upshift in early October. While prices remain low, the drag on exports looks to ease. B.C.’s forestry sector is also expected to gain momentum. The U.S. housing market is on the mend, with rising sales, prices and starts. The consensus forecast is for housing starts to rise 20 per cent in 2013 to 900,000 units, which will fuel gains in prices and demand for B.C. wood products.

Housing

The pace of new housing starts in urban B.C. markets edged lower in September to a seasonally-adjusted annual rate of 27,200 units, down 3.7 per cent from August’s pace.
Housing starts in the Metro Vancouver region dipped 1 per cent, while activity in the rest of the province pulled back 10 per cent. A slowdown in multi-family starts activity accounted for September’s decline.

While the underlying trend in provincial housing starts held steady during the month, there are signs that building activity in the Vancouver market is finally cooling off. Trend-level data points to a deceleration in starts over the past few months, likely driven by weak resale market conditions and high new home inventory. This trend is expected to persist as builders become more cautious and weak pre-sale activity constrains project financing availability.

In contrast, new home construction trends outside Metro Vancouver have been modestly positive. Market conditions are weak but improving and high levels of new home inventory built up prior to the recession have slowly been absorbed by the market. Housing starts activity outside the Vancouver CMA is expected to be more stable as market activity remains in a modest recovery phase.

We forecast housing starts to end 2012 up 1.5 per cent from 2011 and reach 26,800 units. Starts are forecast to edge down 3 per cent in 2013.

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