Yesterday, I began a discussion about the 13 commodity groupings in which Canada has had considerable export strength so far this year. Canada is perceived by the rest of the world as a country that achieves economic success through its natural resources.

The nation is highly industrialized and also has a sophisticated service sector. Nevertheless, foreign trade figures bear out the conclusion that we can thank raw materials for a goodly proportion of our high standard of living.

Ten of the 13 major commodity groupings with export shipment increases, January through April of this year versus the same period last year, are in the natural resource sector.

My previous blog entry highlighted the three fossil fuel categories that are at the top of the list − crude petroleum ($60 billion in exports annualized), natural gas ($34 billion) and petroleum and coal products ($21 billion). The commodity groupings are ranked according to the (annualized) dollar value of their exports so far this year.

In fourth position is the first of only three manufactured products on the 13-category list − aircraft, engines and parts ($16 billion in annualized exports and 0.0% year to date). It may seem odd to include this as a success story when there has been no increase in sales so far this year. However, the fact that there has been no decrease, either, is a noteworthy achievement. This industry is mainly based in Québec and its health is particularly important for the economy of that province.

When so much of Canada’s manufacturing sector is in decline, holding the line is a positive news story. Virtually every manufacturing sub-sector in the country recorded a drop in its capacity utilization rate in the first quarter of this year versus the tail end of last year. A note of caution is warranted. With the increase in the price of jet and other aviation fuels, the airline industry is already showing signs of retrenching. For example, Air Canada has just announced route cutbacks and related job losses.

The next three categories are a return to natural resources − precious metals and alloys ($10 billion and +50.5%); wheat ($7 billion and +70.1%); and wood pulp ($7 billion and +1.3%). The first of these reflects the strength in precious metals mining in the country, as the price of gold moves up as a hedge against inflation and uncertainty in stock markets. Wheat export strength is tied to demand for food staples in emerging nations, where culinary tastes are becoming broader and more sophisticated. Wood pulp export sales suggest that the so-called move to a “paperless society” is a fiction, for the most part.

Also tying in with more intense crop cultivation around the world are fertilizer exports ($5 billion and +35.1%). Potash mines are being expanded in Saskatchewan and New Brunswick. Companies focused on fertilizer production, such as the Potash Corp. of Saskatchewan, have been driving trading activity and causing new record highs to be set on the Toronto Stock Exchange.

Fertilizers are a quasi-manufactured commodity and the third industrial product grouping on the list is steel bars, rods, plates and sheets ($5 billion and +7.9%). It has been well reported that worldwide demand for steel is strong, mainly due to the rise in prominence of China and India. It should also be noted, however, that importations in this category (likely to approach $7 billion in 2008) exceed Canada’s exports.

The final four categories are electricity ($4 billion and +13.1%), iron ores ($4 billion and +21.0%), rapeseed ($4 billion and +58.2%) and coal ($3 billion and +13.1%). Current electricity exports are just the tip of the iceberg when it comes to potential. This is part of the impetus behind the new era of mega electric power projects that almost all parts of the nation are about to embark on. Major hydroelectric projects are planned for Labrador and Manitoba; nuclear for Ontario and possibly the Tar Sands of Alberta; and a clean-coal pilot project for Saskatchewan.

Iron ore, which is a key ingredient in steelmaking, is being sold to producers in China and other emerging nations. As with many other commodities, the price of iron ore has skyrocketed. Major capital spending is planned to increase production in Labrador.

Rapeseed, of which canola is a variant, is used for animal feed, vegetable oil and biodiesel fuel. Finally, coal is another ingredient used in steelmaking (when it is metallurgical) and for electric power generation (when it is thermal). Canada’s major coal mines are in British Columbia and Alberta.

It is interesting to note, however, that Canada is actually importing more coal than it is exporting. Much of this goes towards electric power generation in Ontario. The stated goal of the province’s Liberal government is to move away from coal-fired stations and increase nuclear-powered capacity instead.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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