CALGARY – Thousands of pieces of machinery are moving out of Alberta to busier economies where they might be put to use, after the largest industrial auction held in the province to date closed on the weekend.
Ritchie Bros.’ five-day industrial auction just outside Edmonton ended Saturday after the company’s auctioneers sold $240 million of industrial equipment, an 11.5 per cent jump over last year’s record-setting sale
The auction is the company’s largest in Canada every year, but as Alberta’s economy continues to contract following the collapse in oil and gas prices, the latest sale set records for its size.
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More than 1,125 companies and individuals sold more than 10,200 pieces of used industrial equipment last week with out-of-province and out-of-country buyers purchasing more than half of that equipment, about 54 per cent.
“No doubt (low oil prices are) one of the driving factors and motivators for companies today to participate in an event like this: the fact that they have more idle assets than they have had in the last couple of years,” said Brian Glenn, Ritchie Bros. senior vice-president of Western Canada.
Gross proceeds from this year’s auction surpassed the previous record, set last year, of $215 million. Another auction is set for June, though Glenn said that auction will sell more transportation-sector equipment. The company also sold $120 million in industrial equipment in February.
“Whenever you have an economic environment that is fluctuating — which the Alberta economy is — then companies need to manage their inventories of equipment and what they own,” said Tilman Klumpp, associate economics professor at the University of Alberta.
In a downturn, Klumpp said, companies liquidate equipment that would otherwise be sitting idle – and lots of industrial equipment has sat idle in lots outside of Edmonton and other major centres since oil prices began their fall in June 2014.
“I would think that for an economy the size of Alberta, with all the industry here, a one-week long-auction wouldn’t really enable everyone to adjust their equipment fleets in the way that they need to so it’s likely we’ll see more of that,” said Klumpp, who has researched auctions.
Recent research from Raymond James shows that specialized oilfield equipment is only a small part of the equipment Ritchie Bros. auctions off, but the collapse in oil and gas prices has affected the wider market, causing a larger sell-off in Alberta.
“This is the way the business is supposed to work. Whenever there’s some kind of dislocation in the market, some kind of event like a recession, financial crisis, oil price collapse, it triggers a wave of equipment liquidation,” Raymond James analyst Ben Cherniavsky said in an interview.
“Their business accelerates on these types of events, but they don’t need them to grow and thrive,” Cherniavsky said.
He said that Ritchie Bros. hosts auctions all over the world, so it is not dependent on shocks in any particular market or geographic region for growth.