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Top 5 Exports: Canada

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Crude oil, cars, gold, LPG, and coal top the list of Canada's biggest exports.

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MINYANVILLE ORIGINAL Canada's top export categories for 2011 were crude oil and petroleum products followed by vehicles/components and gold. Liquid petroleum gas and coal rounded out the list. Together the top five exports were valued at $178.7 billion, according to Statistics Canada, or StatsCan, which has been ranked in the past as the best statistical agency in the world by The Economist.

Crude Oil

Canada's largest export category is crude oil, valued at $87.1 billion/year, and includes all bituminous mineral and petroleum oils. At press time, a major oil deal was looming as the Canadian government is currently considering approving CNOOC Ltd.'s (CEO) $15.1 billion bid for the Calgary-based oil and gas producer Nexen (NXY). Coincidentally (or not), Chinese President Hu Jintao and Canadian Prime Minister Stephen Harper chummed around over weekend at the Asia-Pacific Economic Cooperation Summit held in Vladivostok, Russia. At the conference, the two politicians signed an agreement to "protect foreign investors in their respective countries," a move that suggests Canada is positioning itself to benefit as much as possible from China's thirst for Canadian oil.

(See China: Apple Stumbles in China; CNOOC Encounters Resistance in Purchase of Nexen for a detailed background on CNOOC's bid to enter the Canadian oil market.)

Canada's oil industry emerged alongside the oil industry in the United States in the mid-1800s, but it wasn't until the the 20th century that producers uncovered the enormous wealth of resources stored in Alberta's oil sands, where 95% of Canada's oil is now found. With 175.2 billion barrels in proven reserves, Canada holds the third largest supply of oil in the world, topped only by Venezuela (296.5 billion barrels) and Saudi Arabia (265.4 billion barrels).

In terms of production, today Canada is the world's sixth largest oil producer with an estimated 3.6 million barrels produced per day (bpd) in 2011. Canada exports 1.4 million bpd and nearly all of it goes to the the United States. Canada ranks as the thirteenth largest oil exporter in the world.

Proftis from the oil exports only benefit a minority of Canadian-headquartered companies. According to the latest information available, Canada's top three oil producers -- Imperial Oil (IMO), Husky Energy (HSE.TO), and Suncor Energy (SU) subsidiary Petro-Canada -- brought in record-breaking profits of a combined $10.72 billion.

This situation dates back even to 1973, which was a peak for Canadian oil production. At that time, about 90% of oil producers were owned by international firms, according to research compiled by Forest Ethics Advocacy, as reported by Mike de Souza at Postmedia News. Today, 71% of Canadian oil production is foreign-owned and includes ConocoPhillips (COP) and Shell (RDS-A).

In the past two years, oil sand exploration, gas and oil exports, and machinery and infrastructure investments have fueled one-third of Canada's economic growth. This summer, that growth was stifled by the high Canadian dollar, and cheaper products from Asian competitors. The cost of crude oil (CLV12.NYM) plays a pivotal role in the success of the Canadian economy.



Cars

When you think of Canadian industry, it's likely that car manufacturing isn't the first thing that comes to mind. So it might be somewhat of a surprise to hear that (according to the International Organization of Motor Vehicle Manufacturers) Canada produced 2.1 million cars in 2011 and exports $49.2 billion worth of "Motor Vehicles For Passenger Transport (Excluding Buses) and Motor Vehicles Parts (Excluding Body, Chassis and Engines)," according to StatsCan.

Although Canada only produced 1.68% of last year's global output of just over 80 million vehicles, it ranks as the eleventh largest car manufacturer in the world. Canada's largest domestic auto manufacturer is Magna International, Inc. (MGA)

Notably a majority of the industry is centered around assembly plants belonging to foreign manufacturers. Between 2003 and 2011, over 110 foreign companies joined what is now more than 1300 automotive producers operating in Canada today.

This foreign presence is quite familiar -- the first cars to be manufactured in Canada in 1904 were Ford (F) Model Cs. Currently, Ford is joined in Canada by Honda (HMC), General Motors (GM), Fiat (FSOR.PA), Toyota (TM), and Volkswagen (VOW.DE), who produce the roster of passenger vehicles currently being manufactured.

Yesterday, the Canadian Auto Workers Union lodged a number of complaints against the Canadian automobile industry's three biggest players:GM, Ford, and Chrysler (of which Fiat is a majority owner). Grievances include the increasing demands being put on the Canadian workforce, as well as these companies' refusal to commit further, new investment to their Canadian operations, or willingly negotiate "fair terms" with workers. A strike deadline has been set for September 17.

Meanwhile, analysts at Scotiabank (BNS) underscored Canada's strengths and weakness as an auto-parts exporter in a press release earlier this year.

Global Vehicle sales are improving and the Canadian auto parts industry is bouncing back, however, the inability of suppliers to make inroads in the fast-growing markets of Asia and Latin America is undermining Canada's position as a major automobile parts producer... Shipments in the Canadian auto parts industry posted a double-digit year-over-year increase in the opening months of 2012, lifting volumes to an annualized pace of $20 billion -- the highest level since early 2008 and prior to the global economic downturn.

Gold

Gold is the third largest export from Canada, at $17 billion. According to the most recent Forbes' Global 2000, six of the top 12 gold miners in the world are Canadian companies, with Canada's Barrick Gold (ABX) and Goldcorp (GG) topping the list with 2011 profits of $4.4 billion and $1.9 billion respectively.

Canada is, in fact, home to 75% of the world's mining companies, which might come as a surprise, as Canada's gold reserves are only the sixth largest in the world. Not a single one of the world's 10 largest gold mines is located in Canada; however, four of these mines are fully owned by Barrick, and one mine splits ownership between Barrick and Colorado-based Newmont Mining (NEM), which itself owns two more mines on the list.

Yesterday, The Globe and Mail reported that Canada's Detour Gold (DGC.TO) will open the country's largest gold mine in Ontario in early 2013. The news comes as the price of gold (GCU12.CMX) continues on its five-month high following Fed Chairman Ben Bernanke's August 31 Jackson Hole speech.

Shares of Barrick, Goldcorp, and another Canadian-based miner, Kinross Gold (KGC), were trading up at the end of last week as gold traded above $1,700 for the first time since March. On Monday, gold stocks were down on profit taking.

Today, Barrick's CEO Jamie Sokalsky addressed the news that his company would sell its majority stake in China National Gold Group Corp. He acknowledge that talks were in the earlier stages, and beyond that gave no indication of how things might proceed.



Liquefied Petroleum Gases

At $16.7 billion, exports of liquid petroleum gas ("LPG"), better known as propane, is nearly on par with gold exports. The LPG category, which includes numerous other forms of liquefied hydrocarbon gases -- including ethane, butane, and methane -- also known as liquid natural gas or LNG, is a profitable derivative products of the Canadian oil industry. Canada produced nearly 7 million cubic meters of propane in 2011, and it is the sixth largest propane producer in the world.

The latest statistics from Canada's Natural Energy Board show that of the 182.2 thousand barrels per day (b/d) in 2009, 82.6 thousand b/d were consumed domestically, and the remaining 100.3 thousand b/d were shipped to the United States (a small amount of imports make up for the discrepancy between total production and the distribution breakdown).

Canada is the world's third largest natural gas producer -- behind Russia and the United States -- with an average annual production of 6.4 trillion cubic feet. However, since production peaked in 2002, output has stumbled. It is believed that, in the face of low domestic prices and high production costs, the average daily yield is likely to be drop to the lowest level since 1993.

Still, yesterday, London-based BG Group (BG.L) announced plans to begin construction on an 850-kilometer pipeline, a key element of its proposed LNG export facility in Rupert Prince, British Columbia. Houston-based Spectra Energy (SE) will potentially partner with BG on building the pipeline. The move is part of the $20 billion expected to be spent in the next two to nine years opening up Canada's LNG supplies to Asian demand, which is expected to grow by 20% in the next four years, according to Keith Schaefer, writing for Seeking Alpha.

(Read more about liquid natural gas development in North America in China and Singapore Latest to Invest in US LNG Facility.)

Coal

Canada exports $8.7 billion worth of coal and solid fuels manufactured from coal, according to StatsCan. Canada holds the world's fifth largest natural reserve of coal -- behind Russia, the United States, China and Australia -- and at current levels of production, its reserves equate to roughly a 100-year supply, according to The Canadian Encyclopedia. At around 10 billion tons, Canadian reserves make up 4% of the world's natural reserves, and Canada exported nearly 33 million tons of its coal in 2010, 73% of which went to Asia.

Of the four companies responsible for nearly all of the coal production in Canada, three are domestic: Teck Resources (TCK), Walter Energy (WLT), and Grande Cache Coal (GCE.TO). The fourth is London-based Anglo American's (AAL.L) subsidiary Peace River Coal.

Yesterday, Walter Energy was up 6%, joining a number of coal producers up on the news that China plans to commit $156 billion to improving infrastructure. This comes after last week, when three investment banks, including Davenport & Co LLC, lowered coal projections for the fourth quarter of 2012, due to low demand in Europe and China.

More Top Exports From Canada

The list of Canada's biggest exports goes on to include: Potassic mineral and chemical fertilizers ($6.8 billion); aircrafts including airplanes, helicopters, and spacecrafts ($6.6 billion); unwrought aluminum ($6.5 billion); wheat ($5.7 billion); and lumber (5.4 billion).
No positions in stocks mentioned.
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