Canada’s Resource Sector Prepares for Slowdown as Global Market Uncertainty Grows


Read this story from the Globe and Mail on the anticipated slowdown of Canada’s resource-based economy as global commodity prices show signs of serious decline. (Oct. 9, 2012)

Canada’s resource-fueled economy faces the threat of a swooning commodities market at a crucial point in the economic recovery.

From Europe to the United States and especially in China, the outlook for commodities is diminishing heading into 2013, with the impact already being felt abroad.

Evidence is mounting that Canada, where commodities drive about 20 per cent of the gross domestic product, will not be spared some hardship. Canada is a major producer of potash, coal, iron ore, nickel, copper, gold, zinc and uranium, among other base and precious metals that have been hit especially hard as a decade-old commodities market starts to lose steam.

Resource companies account for about half the weight of the Toronto Stock Exchange, and some are feeling the pinch in profits.

On Wednesday the Organization of Petroleum Exporting Countries and the U.S. Energy Information Administration both shaved their forecasts for crude-oil consumption in 2012 and 2013, citing ongoing weakness in the global economy and hitting a key economic driver for Canada.

“I think over all there is a particularly large impact if you are looking at Canadian equity markets,” said Peter Buchanan, senior economist with the Canadian Imperial Bank of Commerce. “Quite clearly, subdued prospects there do provide some downside risks for some of the metals.”

The International Monetary Fund said this week it had trimmed its forecasts for economic growth in Canada – to 1.9 per cent this year and 2 per cent next, down in each case by 0.2 percentage points from earlier projections – and warned unemployment will remain at 7.3 per cent.

That came just days after Toronto-listed Thompson Creek Metals Co. said it was cutting $100-million in spending at an Idaho mine in order to be able to finance construction of a new mine in British Columbia.

Suncor Energy Inc. said in July it was rethinking billions of dollars of planned spending because of increasing costs.

Lower capital spending by the resource sector, about one-quarter of total business capital spending, could end up having a significant impact on Canada because it is such an important driver of the economy.

“The prospects that one of the other sectors, consumption or government spending, could accelerate to offset that is virtually zero,” said George Vasic, chief economist and strategist at UBS Securities Canada Inc. Mr. Vasic said he is not yet alarmed about the potential impact on Canada, but that his outlook could change if business capital expenditures fall off in Canadian resources. “So, it is a significant potential development, which I think is only partially reflected in forecasts,” he said.

The world’s third-biggest diversified miner, Rio Tinto PLC, started the week by saying it had become more cautious about the business outlook than even a few months ago. It says it will delay new project approvals in the near term.

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