Fabricated Metal Sector Update, Q1 2016

Quarter 1, 2016

Metal Fabrication & Manufacturing Sector Market Intelligence Report & Services Development Plan

Market Intelligence Report 2016 Trends

Manufacturing Sales

Our provincial economy can be affected greatly by the commodities market. There is no doubt about it; oil & gas, mineral mining, and agriculture are chief drivers of our economy.

What has changed, however, is how much better we are at adjusting to changes in the global economy. This is a tribute to our diversity and to ability to react to the market when things change quickly. The key to moving forward into 2016 will be to understand what the impact of the global economy has had, by examining the sales trends in manufacturing, analyzing the risks and opportunities, as well as where our export and labour markets are going.

Sales for December 2015, as reported by Stats Canada, paint a picture of an industry in transition. November 2015 saw an 11.2% decline in year over year sales.1 Sales quickly rebounded in December of 2015, posting a 6.0% increase over November 2015, but it was still a decrease of 3.7% from December 2014.2 Sales in the Fabricated Metal Products and Machinery, in December 2015, are following the same trend as the overall manufacturing sales in Saskatchewan as both categories recorded $62,258,000 and $115,157,000 in sales respectively.3 For Fabricated Metal Products, this represented an increase of 7.9% from November 2015, but a decline of 7.9% from December 2014.4 Machinery also saw an increase of 18.9% from November 2015, but a similar decrease from December 2014 of 5.4%.5

December 2014

November 2015

December 2015

November 2015 to December 2015

December 2014 to December 2015

Seasonally Adjusted Saskatchewan

$ Thousands

% Change

All Manufacturing Industries

1,231,716

1,118,451

1,185,657

6.0

-3.7

Fabricated Metal Products

67,594

657,684

62,258

7.9

-7.9

Machinery

121,773

97,000

115,157

18.7

-5.4

Source – Stats Canada - http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/manuf32i-eng.htm

Assessing the Risk & Opportunity The future outlook for Saskatchewan is mixed. The Conference Board of Canada (CBOC) “anticipates that 2016 will be a year of recovery…as long as oil markets stabilize.”6 This is based on the assumption that Saskatchewan has hit the bottom of this downward cycle. This stands in contrast to The Canadian Association of Oil Drilling Contractor’s expectation of 200 less oil wells being drilled in Saskatchewan.7 This is considerably less than the 1789 wells the Petroleum Services Association of Canada forecasted for 2016.8 The only certainty in the energy commodities seems to be uncertainty. If you company is tied into the energy supply chain, then the oil commodity markets need to become a regular key market indicator for you, if it is not already.

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The second risk associated with the price of oil is the value of the Canadian dollar. Specifically, the lower the value of the dollar the lower the purchasing power it provides. For metal manufacturers that import inputs from the United States, this means added costs. The value of the Canadian dollar is tied to the price of oil. As long as the price of oil remains low, so will the value of the Canadian Dollar.

The value of the dollar and the price of oil are the contributing reasons for the decline in manufacturing sales noted by Stats Canada in November 2015.

Understanding our Exports Although we are in a market correction, Saskatchewan commodities continue to grow. For example, the 8% drop in export value is somewhat significant; however, it does not tell the whole story. Exports in 2015 were valued at $32.551 billion.9 This is slightly lower than the record breaking $35.362 billion in 2014.10 2015 is the second best export year in Saskatchewan. This was driven the agricultural industry with a record $15.1 billion in sales as well as a 33% increase in mineral industry sales.11 Saskatchewan exports go to approximately 150 countries. The significant change in 2015 was in the final destination. Exports to the United States dropped by 22%, but exports to China and India were up 18% and 60% respectively.

Global growth will be concentrated in the Asia Pacific Markets.

Brazil and Russia are in recession. China will grow at 6% GDP.12 China’s individual incomes continue to rise. This is a trend that has been happening over the last 3 years, as China moved from being a goods producing economy to a consumer driven economy. Currently, China accounts for 50% of global consumption

80.0

of commodities, but only 12% of oil and gas consumption.13 CBOC believes that China will move away from coal to meet its energy needs and rely on oil, natural gas, and uranium more.

This would be a significant opportunity for Saskatchewan and the Regina Region.

Labour Trends The CBOC expects the unemployment rate for Saskatchewan, in 2016, to be 5.4%.14 Certainly, this is a bit more room for labour mobility, but it is still a tight labour market. In fact, Statistics Canada has the unemployment rate for the Regina – Moose Mountain Region at 4.0% as of January 2016.15 This is slightly above the unemployment rate noted by the CBOC of 3.7%.16 In the latest Regina Executive Leadership Outlook, EDR and Praxis Consulting asked industry leaders what their hiring plans were for 2016. The results are as follows:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

43.5 43.5 40.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30.8 20.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12.9 9.6 0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Same Fewer More September 2015

January 2016

17 Source – Regina Executive Leadership Outlook

Is your firm expecting to employ more, the same, or fewer employees in the next twelve months?

Fewer

Same

More

Private Businesses

8.8

48.8

42.9

Other

11.8

82.4

5.9

18 Source – Regina Executive Leadership Outlook

Economic Development Regina | 3

The private sector will continue to hire and it will necessitate human resource departments to become more aggressive in recruitment and retention, as well as developing job specific data to help drive strategic human resource plans.

For example, the workforce for welders, according to the 2011 Census, breaks downs as follows:

Total

Women

Aboriginal

Visible Minority

Per Capita

Regina

795

0

15

45

0.0064

Saskatoon

1105

0

55

135

0.0072

Calgary

3615

70

185

690

0.0052

Edmonton

7090

345

435

940

0.0106

Hamilton

2055

50

45

395

0.0054

Winnipeg

1870

50

256

476

0.0047

19 Source - Labour Program - 2011 Employment Equity Data Report

On a per capita basis, Regina is comparable to other major markets for welders. A lot of work has been done to recruit women, First Nations, and other visible minorities into the welding profession. However, it is continued engagement of these groups that will ensure a steady supply of labour into this field.

Further to expanding local recruitment, some organization may wish to consider adopting interprovincial strategies to recruit labour. These types of initiatives become all the more important as labour scarcity lingers.

The manufacturing industry continues to grow despite an output decline as employment rose an estimated 1.5% in 2015.20 When compared to the national growth average, Regina’s manufacturing employment has expanded 22% from 2000-2015, whereas Canada’s manufacturing employment declined almost 25% of the same period.21

Regina in 2016 The CBOC expects the economy of Regina to grow in 2016.

They are forecasting a Real GDP growth rate of 1.1%.22 The GDP will continue to grow at a rate of 2.4% from 2017 – 2020.23 Although, we are coming through an adjustment period, it will be the major infrastructure projects that carry the economy of over the medium term. The construction sector will grow in 2016 by 3.4% due to the $1.9 billion by pass combining with the continued construction of the stadium and water treatment plants.

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Further growth, beyond the CBOC’s expectations, will be driven by the potential sales recovery in manufacturing, accessing new markets by capitalizing on the export market trends, and by being aggressive in recruitment and retention of our skilled workforce.

For any questions or clarifications, please feel free to contact Shaadie Musleh, EDR Strategic & Competitive Intelligence Manager smusleh@economicdevelopmentregina.com

Services Development Plan Economic Development Regina (EDR) has positioned itself as a leading source of support and guidance to the “smart sectors” of the Regina regional economy, and chief among them, the fabricated metal products ecosystem. EDR’s Metal Fabrication & Manufacturing Sector Development, Strategic & Competitive Intelligence, Investment Attraction, and Events, Conventions, and Tradeshows departments, all working together to execute upon its Fabricated Metal Products Manufacturing Sector Strategy 2016-2020 to make Regina a better place for the industries and their employees to live and work.

EDR recognizes that the challenges that the industry sectors are facing right now affect both the short-term financial performance as well as long-term strategic visions of the companies in this region. In this regard, EDR has been working diligently to enlighten (through best-practices tours, intelligence reports, pathfinding, investment attraction, and industry roundtables) and empower the metal fabrication and manufacturing sectors by developing a pipeline of targeted advisory services that deliver immediate and long-lasting value to the organizations.

• Organic & Inorganic Growth Opportunity Identification & Execution • Post-Merger Integration • Internal Market Research & Competitive Intel Best Practices • Product Development & Management Best Practices As always, EDR seeks to maintain constant communication and feedback between the industry and itself. As such it requests feedback from the leaders to help prioritize the development of the advisory service areas listed above. Kindly send your comments in confidence regarding the services that would benefit your organization the most (even if it’s not on the list) to Ash Khan, Metal Fabrication & Manufacturing Sector Development Manager.

Much of this will be possible by maintaining close communications and time investments between the industry and EDR. This allows EDR to hone in on common challenges and opportunities for growth that can be leveraged to create a measurable impact on Regina’s economy. EDR’s role, beyond identifying and developing advisory services parameters, will be to facilitate group (or individual company) sessions with advisors, trainers, or consulting firms that have a track record of delivering consistent value to the manufacturing industry and/or are known to the agency, and to track the outcomes of these engagements on the group or individual sector companies. EDR’s goal is to execute the sector strategy and help the metal fabrication & manufacturing sector companies update or adopt best practices in the areas of: • Innovation Culture Diagnosis & Innovation Management System Implementation • Management & Organizational Development

For more information contact:

• Change Management

• Corporate Development

Ash Khan Manager, Sector Development, Metal Fabrication and Manufacturing E: akhan@economicdevelopmentregina.com P: 306-789-5099 ext. 225

• Corporate Strategy Development

www.economicdevelopmentregina.com

• Succession Planning • Executive & Leadership Coaching

Economic Development Regina | 5

References 1

Labour Market Bulletin – Saskatchewan: January 2016 available at http://www.jobbank.gc.ca/content_pieces-eng.do?cid=8865&lang=eng#fnb3 Accessed on March.

2, 2016.

2

Manufacturing sales, by sector, by province and territory (monthly) (Saskatchewan) available at http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/manuf32ieng.htm Accessed on March 2, 2016.

22

Conference Board of Canada – Economic Insights into 13 Canadian Metropolitan Economies; Winter 2016- Forecast Completed Dec. 22, 2015.

23 Ibid.

3 Ibid.

4 Ibid.

5 Ibid.

6

Labour Market Bulletin – Saskatchewan: January 2016 available at http://www.jobbank. gc.ca/content_pieces-eng.do?cid=8865&lang=eng#fnb3 Accessed on March. 2, 2016

7

Johnstone, Bruce – Leaderpost “CANADIAN Association of Oilwell Drilling Contractors Forecasts 200 fewer wells in Saskatchewan in 2016.” Available at http://leaderpost. com/business/energy/caodc-forecast-200-fewer-wells-in-sask-in-2016 Accessed on March. 8, 2016

8 Ibid.

9

CBC “Dispite 8% drop, Sask. exports 2nd highest ever in 2015:province. March 7, 2016. Available at http://www.cbc.ca/news/canada/saskatchewan/saskatchewan-exports-2015-2ndhighest-1.3479400 Accessed on March. 8, 2016.

10 Ibid.

11 Ibid.

12

Conference Board of Canada - Presentation – “The 2016 Metropolitan Outlook: Canadian Urbanomics” Feb. 26, 2016

13 Ibid 14

Conference Board of Canada – Economic Insights into 13 Canadian Metropolitan Economies; Winter 2016- Forecast Completed Dec. 22, 2015.

15

Labour Market Bulletin – Saskatchewan: January 2016 available at http://www.jobbank. gc.ca/content_pieces-eng.do?cid=8865&lang=eng#fnb3 Accessed on March. 2, 2016

16

Conference Board of Canada – Economic Insights into 13 Canadian Metropolitan Economies; Winter 2016- Forecast Completed Dec. 22, 2015.

17 Economic

Development Regina - Regina Executive Leadership Outlook Available at http://www.economicdevelopmentregina.com/market-intelligence/thought-leadership/ regina-executive-leader-outlook Accessed on March 8, 2016.

18 Ibid.

19 Statistics

Canada – “Workforce Population Showing Representation by Employment Equity Occupational Groups and Unit Groups (2011 NOC) for Women, Aboriginal Peoples and Visible Minorities” Available at http://www.labour.gc.ca/eng/standards_equity/eq/pubs_eq/eedr/2011/report/tables/table05_index.shtml Accessed on March 2, 2016.

20

Conference Board of Canada – Economic Insights into 13 Canadian Metropolitan Economies; Winter 2016- Forecast Completed Dec. 22, 2015.

21 Ibid.

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