High input prices have opened up space for imports, squeezing profit margins
Los Angeles, CA (PRWEB) March 04, 2013
According to a 2010 study by the World Energy Council, Canada's Alberta province plays home to just over 70.0% of the world's bitumen reserves, also known as oil sands. “Consequently,” says IBISWorld industry analyst Josh McBee, “an estimated 63.7% of the Mining, Oil and Gas Machinery Manufacturing industry's manufacturing locations are within Alberta, as the provision of machinery and related services near production sites creates supply chain efficiencies that save on manufacturers' transportation costs.” Outside of Alberta, the United States forms this industry's dominant geographic source of demand, and total exports have accounted for more than 40.0% of the industry's revenue during the past five years.
Beyond export demand, industry revenue is closely tied to prices for crude oil and mined commodities, such as coal. According to McBee, “When prices for these items plummeted during 2009, downstream oil, gas and mining exploration companies reduced their capital outlays, in turn reducing demand for this industry's derricks, drill bits, downhole tools and drills.” Revenue has since managed to return on the back of renewed export demand and ongoing development of Alberta's oil sands. Subsequent gains are expected to overcome prior losses, and IBISWorld expects industry revenue to increase marginally during the five years to 2013, netting growth of an annualised 0.8%. In the near-term, revenue is expected to increase 1.4% and total an estimated $5.4 billion in 2013.
Concentration in the Mining, Oil and Gas Machinery Manufacturing industry is high. In 2013, the top-three companies (Halliburton, Atlas Copco and Caterpillar) are expected to account for the majority of total industry revenue. Much of the remaining industry consists of minority shares belonging to National Oilwell Varco and Sandvik, both of which are large companies but with only a marginal involvement in Canadian manufacturing. Beyond the more than 95.0% of industry revenue for which these companies account, the rest of the industry consists of many small operations producing goods on a local or regional level. According to data from Statistics Canada, almost 40.0% of total industry establishments employ fewer than 20 people. Because the companies that hold the lion's share of revenue have mostly been around for more than 100 years and have a strong global presence, market share concentration is projected to remain high during the coming five years.
The return of sales will likely improve the industry's profit potential, which has suffered from downward pressure during the past five years. High steel prices during the period have raised purchase costs, in turn raising product prices. This scenario has opened the door for price-based competition from cheaper imports, which are expected to increase at an annualised rate of 4.1% during the period. Still, the industry manages to maintain high export levels, and employee reductions have helped create operational efficiencies that salvage profit even in the face of high costs and competition. As profit improves, the industry is set to expand slightly during the coming five years. Through 2018, revenue is forecast to increase at an annualised rate of 0.5% and total an estimated $5.6 billion.
For more information, visit IBISWorld’s Mining, Oil & Gas Machinery Manufacturing in Canada industry report page.
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IBISWorld industry Report Key Topics
This industry manufactures oil and gas field equipment and underground mining machinery. Products include rotary and portable drilling rigs and parts; crushing, pulverizing, screening and mineral processing machinery; and derricks, substructures and related accessories. The following are excluded: machinery with dual construction and mining uses; conveyors for coal and ore; underground mining locomotives; and offshore drilling production platforms.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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