Chinese ban on Canadian canola shocks industry October 24, 2009
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Canola seed is transferred from farm bins for transport. (CBC)China’s abrupt cancellation of Canadian canola imports is confusing authorities who say they don’t understand the rationale behind the move.
According to reports, the Chinese have expressed concerns about a fungus called blackleg.
The Canola Council of Canada says blackleg disease poses no risk to human health. Nevertheless, the Chinese insist they will not accept any Canadian canola seed shipments unless the product is certified as free of the disease.
The move is effective Nov. 15.
Officials with the Canadian Food Inspection Agency are investigating.
Last year, Canada shipped almost three million tonnes of canola to China. In Saskatchewan alone, the crop is valued at $5 billion, with the bulk of sales headed to China.
Farmer suspicious
Some in the industry suspect the move may be strategic.
“It might just be a tactic to drops prices down or to slow up some shipments that are heading their way,” Kevin Plummer, a farmer with 100 hectares of canola south of Saskatoon, told CBC News. “But if they’re serious about this, it’s going to have long-term implications here.”
Saskatchewan farmer Kevin Plummer says he is worried about the long-term impact on canola growers if China sticks to its new ban on canola imports with blackleg disease. (CBC)The blackleg fungus can only affect a canola seed if it germinates. It has no effect on canola seed pressed for oil.
Observers say the move is also suspicious because of the timing.
“[The Chinese] are going to be harvesting their canola very soon,” Larry Weber, a commodities expert in Saskatoon, told CBC News. “When this was announced yesterday, their futures market ? went up two per cent.”
That contrasts with falling prices on some spot markets in Canada.
“China has blackleg within their own country,” Weber added. “So it’s a red herring.”
Federal Agriculture Minister Gerry Ritz was not available for comment. His office issued a statement saying government officials were heading to China and would work on the issues.
Weber said that is a smart move.
“If you know anything about the Asian psychology, trying to negotiate with China from Ottawa to somewhere in Hong Kong or somewhere in Bejing is not going to work,” Weber said. “They prefer face-to-face meetings.”
Weber said Ritz should be leading the trip to China.
N.W.T. diamond industry losing edge, MLA worries October 18, 2009
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A new diamond cutting and polishing facility in Sudbury, Ont., means more competition for the N.W.T. diamond processing industry, MLA Robert Hawkins says.(CBC)
The Northwest Territories’ hold in Canada’s diamond processing industry may be getting undercut by Ontario, where a diamond-cutting plant opened recently, a Yellowknife MLA says.
Yellowknife Centre MLA Robert Hawkins asked Premier Floyd Roland on Friday about the Crossworks Manufacturing Ltd. plant in Sudbury, Ont., where 27 experienced workers have been brought in from Vietnam to cut and polish diamonds.
The Sudbury facility, the first of its kind in Ontario, is expected to handle about $25 million worth of rough-cut diamonds this year.
It has a contract with DeBeers Canada, with the diamonds coming from that company’s Victor Mine near James Bay.
“Ontario has said that they want to be the new international diamond pipeline. That is their position now for Canada, that diamonds run through there,” Hawkins said in the legislative assembly.
The Northwest Territories has three diamond mines, all 200 to 300 kilometres northeast of Yellowknife: BHP Billiton’s Ekati mine, DeBeers’s Snap Lake mine and the Diavik mine, owned by Rio Tinto and the Harry Winston Diamond Limited Partnership.
The capital city of Yellowknife, which has dubbed itself “North America’s diamond capital,” is home to several diamond processing plants, including one by Crossworks Manufacturing.
Ontario ‘cheaper to do business’
But Hawkins said Ontario is rolling out the red carpet for the diamond industry, raising questions about whether the Northwest Territories can keep up.
“Ontario is now producing diamonds, and their market is looking a heck of a lot more attractive when they can get deals on land to set up shop. They can get workers in there cheaper, their power is cheaper,” he said.
“Everything is cheaper to do the business.”
But when asked if the government has a “Plan B” strategy to protect the Northwest Territories’ diamond cutting and polishing industry from emerging competition, Roland sounded less concerned.
“Let’s be clear: the Northwest Territories’ diamonds, the polar bear diamonds, are prized throughout the world for the quality that we have here in the Northwest Territories. So let’s not undersell ourselves on this,” Roland told the legislature.
“Our diamond industry is spooling back up. Our factories are hiring more people again as there is more interest and more money available for diamonds again throughout the world.”
Roland said the N.W.T. government’s policies on the diamond industry are under review.
Ontario discusses HST break for mutual fund industry September 30, 2009
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Dalton McGuinty says his government is talking to the mutual fund industry about a possible exemption from the HST.(CBC)
Premier Dalton McGuinty said Wednesday his government is talking to the mutual fund industry about a possible exemption to the harmonized sales tax.
There is no agreement now, but the Ministry of Finance is holding discussions with mutual fund companies and other groups to make sure the government “gets it right” on tax harmonization, McGuinty said.
In the March 26 budget, Ontario announced plans to merge the eight per cent provincial sales tax with the federal GST.
The move is aimed at reducing the cost of doing business in the province, but it would hike the cost of many items now exempt from the provincial levy onto the backs of consumers.
British Columbia recently signed a similar proposal.
Both laws are set to come into effect July 1, 2010.
Even consumers outside B.C. and Ontario would be affected if the companies from whom they purchase securities are registered in one of those provinces.
The fund industry, like many others, has come out strongly against the proposal.
“A harmonized sales tax could drain over half a billion dollars a year from the investment accounts of Ontario residents,” CI Financial Corp. Stephen A. MacPhail said.
The company estimates that for every $20,000 invested in a mutual fund, consumers would pay $52 per year to the HST.
CI is considering launching a separate set of mutual funds for Alberta residents, where there is no sales tax.
A TD Economics report earlier this month concluded HST legislation in Ontario and British Columbia would save businesses $6.9 billion annually, while shifting the tax burden from businesses to consumers.
McGuinty wouldn’t say whether he was sympathetic to the industry’s complaints about merging the eight per cent Ontario sales tax with the federal GST.
But his comments appear to put him at odds with Finance Minister Dwight Duncan, who has reportedly taken a hard line against the mutual fund industry’s complaints about the HST.
According to a report in the Globe and Mail earlier this month, the minister’s office has threatened to release a damning report on the negative impact of management fees unless the industry backs off.
NDP Leader Andrea Horwath says taxpayers should be outraged that the governing Liberals are bowing to big business instead of trying to find more exemptions for ordinary families for everyday items like home heating oil.
Conservative Peter Shurman says lots of groups have a case against the HST, and the tax needs to be stopped now before it’s implemented next July.
With files from Canadian Press (more…)
TD sounds alarm for Alberta’s natural gas industry September 30, 2009
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Alberta’s natural gas industry faces risks that “are significant and growing,” according to a report released Monday by TD Economics.
The report by Derek Burleton, TD’s director of economic analysis, cites competition from British Columbia’s increasing gas production and the potential loss of the U.S. as an export customer.
Companies have spent $4 billion drilling in British Columbia since 2006.(CBC)
Natural gas exploration and development is a cornerstone of Alberta’s economy, generating $35 billion to $40 billion ? or one-tenth of the provincial economy in 2008 ? and directly employing up to 140,000 people.
In 2009, the industry has been ravaged as prices for the heating fuel have fallen to $3 US from $8 per million British Thermal Units. Natural gas closed Monday in New York down 26 cents at $3.73.
Prices have fallen to seven-year lows not only because of a combination of last year’s mild winter and falling demand because of the recession, but also because of increasing production from shale formations.
Domestic production in the U.S., which in the past has relied on Alberta for up to one-seventh of its consumption, has boomed since 2004, as new technology opens up new areas. The technology fractures and props open formations that were previously inaccessible.
In June, the Colorado School of Mines came out with a report showing shale gas production has boosted American supplies by 35 per cent, its largest jump in the 44 years it has been collecting data.
“There has been some speculation that the U.S. might one day join the small list of countries no longer relying on net imports of natural gas,” Burleton said in the commentary.
At the same time, competition for the American market is heating up. Shale gas formations are opening up in Quebec, Atlantic Canada, and Saskatchewan, but especially in British Columbia’s Horn River and Montney Basins. Companies have invested $4 billion for drilling rights in B.C. since 2006 and are now producing one trillion cubic feet a year, making that province Canada’s second largest producer.
Some win in the shift to shale
Share price performance of oil service stocks over the past month
Company Change
Calfrac 47%
BJ Services 27%
Trican 25%
Trinidad Drilling 22%
Savanna Energy 15%
Precision Drilling 14%
Parker Drilling 12%
Helmerich & Payne 8%
Nabors 4%
Ensign Energy 2%
Patterson-UTI Energy -2%
Source: UBS
The shift to shale is also favouring the stocks of some companies that provide production services that use that new technology. The financial services firm UBS tracked share prices and said in a report released Monday that over the past month, Calfrac, Trican and BJ Services have outperformed their drilling peers by as much as 33 per cent. While it predicted several quarters of weak earnings yet, it expected shale service companies to do better than conventional drillers.
Still, shale gas may end up overrated. What’s uncertain are its decline rates, the rates at which wells are exhausted. Limited evidence shows these to be higher than conventional gas wells. There are also environmental concerns about water contamination, which could discourage investment.
Some companies have blamed the Alberta government increase in royalties for adding to the problem. Burleton’s analysis found, depending on market price and production levels, natural gas royalties were raised to 15 to 50 per cent from 15 to 35 per cent by the changes, which took effect this year.
Natural gas prices have fallen to a seven-year low this year.(CBC)
By comparison, natural gas royalties in B.C. ranged from nine to 27 per cent, depending on price. Despite the complaints, at low natural gas prices, Alberta royalties remained competitive, Burleton said.
What’s not debated in Alberta is that companies have laid off workers, drilling rates have plummeted, and firms have “shut in” production by turning off wells.
‘…natural gas will never return to the same prominent place it occupied in the Alberta economy only five to 10 years ago.’
?Derek Burleton, TD Economics
“It appears that Alberta’s economy continues to contract as most other regional economies in the country show signs of renewed life,” said Burleton.
“The potential for an accelerated long-term decline of an industry that does so much of the heavy lifting in the Alberta economy is arguably the number one risk facing the province’s standard of living,” he wrote.
Burleton concluded that Alberta’s natural gas industry will never return to as prominent a position in the Alberta economy as it enjoyed only five to 10 years ago. Still, he refused to count out Alberta natural gas. Future markets would suggest prices will return to $5 or $6 per million British Thermal Units by March of next year. That would help some, but not all producers, according to the Ziff Energy Group.
What is certain, said Burleton, is the need for the Alberta government to rein in spending. Already, falling royalties have contributed to a deficit expected to hit almost $7 billion this year.
The “rapid spending years of the past half decade ? when annual outlays rose at a double-digit rate ? will need to be relegated to Alberta’s history books,” he said. “Parsimony in non-priority areas will need to be the watchword even once surpluses re-emerge. On the plus side, the growth-related pressures that drove much of the robust spending increases earlier this decade appear unlikely to return over the foreseeable future.”
Auto industry recovery depletes inventories September 24, 2009
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Strong auto sales have led to a boost in production as inventories fall to record lows.(Paul Sancya/Associated Press)
The auto industry continues to gain traction, with inventories in some parts of the world at record low levels, according to the latest Global Auto Report released by Scotia Economics.
Sales in the U.S. last month jumped almost 50 per cent thanks to the cash for clunkers program, which offered buyers lucrative incentives for scrapping their old gas guzzlers. But the report notes that even when the cash for clunkers sales are excluded, U.S. sales climbed to a nine-month high.
The U.S. sales performance in August was so strong that U.S. dealer inventories fell to a record low of 30 days supply. The normal inventory level is 65 days. “Inventories are currently 20 per cent less than the previous low in August 1983,” Scotiabank economist Carlos Gomes said.
Inventories of Canadian-made models in the U.S. are very low ? especially for Toyota Corollas, Honda Civics and Chevy Camaros. Gomes said the stock of Corollas at U.S. dealerships was “virtually non-existent” at the end of August. The Corolla was the most popular car picked in the cash for clunkers program.
Production is rising around the world as a result of low inventories. “Current production plans will add roughly two percentage points to U.S. overall economic activity in the second half of 2009,” the report says. In Canada, the increase in auto assembly activity is expected to add “at least a percentage point” to economic growth in the third and fourth quarters.
But the report notes that output would need to rise at least 20 per cent above current schedules before inventories return to normal levels.
Vehicle sales in Canada remained strong in August, with annualized sales of 1.51 million units. Scotia Economics has boosted its 2009 sales forecast to 1.45 million cars and light trucks and says sales could come in higher than that because several automakers have introduced their own cash for clunkers incentives in Canada.
As rosy as sales and production forecasts are for Canada and the U.S., the bounce-back in some overseas markets is even more impressive. Sales in several emerging markets are at record levels, led by an average 55 per cent year-over-year increase in China, India and Brazil.
Gas industry profits predicted to drop by 60% September 20, 2009
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? Natural gas profits this year will fall to less than half what they were last year, says a report released Friday by the Conference Board of Canada.
Industry-wide, profits will fall by more than 60 per cent, according to the Conference Board’s report Canadian Industrial Outlook: Canada’s Gas Extraction Industry, Summer 2009. The report predicts profits will total $2.3 billion this year, the lowest for the gas industry since 1999. Profits should start growing again starting in 2010 as prices for natural gas improve.
Canadian natural gas production will fall for the next four years, the Conference Board of Canada predicts. (CBC)
“Last year, revenues more than doubled over the first six months as gas prices skyrocketed,” says Conference Board economist Todd Crawford in a release. “Now, low prices and the tough credit conditions have created a perfect storm that sent drilling activity in Canada tumbling this year. “
The board says the slump in industry demand for materials such as steel will mean costs will fall 13 per cent this year. However, that will be only temporary. Costs will rise along with the price of oil, and the gas industry competes with oil producers for much of the same labour and materials.
Gas production fell 5.2 per cent last year and the board forecasts a similar drop this year. The report predicts further declines in each of the next four years.
The report comes one day after a National Energy Board forecast that predicted the slowdown in drilling will put a “significant dent” in gas supplies over the next two years.
Prices plummet
Demand for gas has fallen with the recession, and storage facilities across North America are close to full. Prices have fallen from a record high of $13 US per million British Thermal Units in July of 2008 to about $3.50.
Oil prices have rebounded somewhat during the same period, partly on indications of pickup in growth in emerging economies. Gas is different, and unlike oil ? which is a globally traded commodity ? and trades almost entirely only within North America.
S&P/TSX Energy Sub-ndex 3-month chart
Drilling in Canada and the U.S. has slowed with falling prices, and some Canadian producers have turned off production from some of their wells. There were 199 drilling rigs active in Western Canada on Sept.1, compared with 412 on the same date in 2008.
Natural gas drilling accounted for two-thirds of Canada’s oil and gas industry activity last year, according to the Calgary-based Canadian Association of Petroleum Producers.
Canadian mining needs tax relief in tough ‘09, industry says August 31, 2009
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Canada’s mining companies need government help in order to prevent a sector worth $40 billion from contracting further, according to an industry submission released Monday.
The Canadian Mineral Industry Federation (CMIF) said Ottawa must make it more attractive for its members to invest in new machinery in order to keep valuable jobs processing various minerals in the country.
“The CMIF believes that, with appropriate tax measures for exploration and plant investment, Canada can build on its competitive advantages and continue to have an important presence in value-added activities,” the federation said in a report submitted to a conference of mines’ ministers in St. John’s, N.L.
The mining sector contracted in the first quarter of 2009.(CBC)
The federation is an umbrella group consisting of 17 mining organizations, including the Mining Association of Canada.
Over the past 25 years, Canada’s mining and extraction companies have been finding fewer rocks and liquids to extract, the federation said.
That has led some companies to seek new mines and wells in other countries.
Some firms have moved toward processing minerals as a way of staying in business, the CMIF said.
In the federation’s view, Ottawa could help these companies by, among other measures:
Introducing a tax credit for deep drilling.Improving tax depreciation allowances for firms modernizing their facilities.Making permanent an existing 15-per-cent mining exploration tax credit.
Canada’s extraction sector, which includes oil pumpers as well as miners, has seen its share of difficulties during the current recession.
The GDP of the country’s mining and oil and gas sectors declined in June over May and slumped 5.5 per cent between October 2008 and March 2009.
Support car sales with $350M ’scrappage’ program, auto industry pleads June 7, 2009
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Cars junked in Germany, where a scrappage program has boosted sales of new vehicles, the Canadian auto industry says.(Fabian Bimmer/Associated Press)
Auto dealers and car manufacturers want the federal government to immediately commit $350 million to a one-year program to subsidize purchases of new cars.
The industry proposed Friday expanding an existing environmental program to boost its sales. But “there are no plans at this time to expand the Retire Your Ride program,” an Environment Canada spokesman said.
The dealers and manufacturers said Friday that the government should give consumers $3,500 towards the purchase of a new car if they trade in or scrap a vehicle that’s more than 10 years old.
“The 3,500 new car dealers who are at the heart of nearly every community across Canada are struggling to survive this unprecedented economic downturn,” said Richard Gauthier, president of the Canadian Automobile Dealers Association.
“A robust scrappage program could increase sales by as much as 100,000 units, which would be a significant benefit to consumers, dealers and their local economies,” said Mark Nantais, president of the Canadian Vehicle Manufacturers’ Association.
That would go a long way to replacing the 141,000 vehicle sales that disappeared in 2008, compared with 2007. But it would cost the federal government as much as $350 million.
At the moment, its four-year, $92-million Retire Your Ride program offers a “reward” of up to $300 to get older, higher polluting vehicles off the road. The reward may include discounts on public transit passes, bicycles, memberships in car-sharing programs or cash.
However, the industry said that money could be reallocated to its program, while some of the costs could be recouped through the additional estimated $125 million GST collected, and the $65 million estimated green levy, the tax on vehicles with poor fuel efficiency.
Gauthier said a similar program in Germany shows how it might work in Canada. Germany introduced a $3,800 per vehicle scrappage incentive, and new vehicle sales jumped sharply in April and May, he said.
A U.S. program will offer between $3,800 and nearly $5,000, the industry release said.
The existing federal program is aimed at older cars, because vehicles built before 1996 “produce about 19 times more air pollutants than newer cars and trucks,” the government said in a news release earlier this year.
Nearly five million of the 20 million vehicles in Canada were built before 1996.
Pessimism the new norm for forest industry: PricewaterhouseCoopers May 14, 2009
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A large clamp machine moves logs at a sawmill in Grand Forks, B.C., in 2007. Lumber production in the B.C. Interior fell 31 per cent in 2008.(Jeff Bassett/Canadian Press)
Low prices, low profits, and pessimistic forecasts are the “new version of normal” in the forest products industry, a PricewaterhouseCoopers expert said Thursday.
And Canadian producers are among the worst performers, Craig Campbell, an executive in the firm’s global forest, paper and packing practice, said in a news release about international comparisons of 100 public companies.
The 100 companies reported a 2008 return on capital employed of two per cent, down from five per cent in 2007.
“B.C. and the rest of Canada are at the bottom of the pack (both at minus five per cent), and the only regions showing negative returns on investment as mills are shutting down and production moves to the southern hemisphere,” the release said.
Canadian production is less diversified than elsewhere, and the key U.S. housing market, which buys much of Canada’s lumber, has been severely depressed.
Lumber, pulp prices crashed
Lumber prices in 2008 were at 25-year lows, and have fallen in the first quarter this year. Canadian softwood lumber production fell 21 per cent in 2008, PricewaterhouseCoopers said.
In the B.C. Interior, which accounts for more than 45 per cent of Canadian lumber, production fell 31 per cent.
“But the reduced production has not kept pace with the decline in housing starts,” Campbell said.
U.S. builders will start 750,000 houses this year, a step up from the current 500,000, “but a big stretch from the two million of a few years ago or even the pre-crisis one-and-a-half million,” he said.
As for the pulp market, it hit a peak in early 2008 at $880 US a ton for a standard grade, which now fetches just $690 a ton.
“The economic tsunami that hit last fall washed away hopes of an upswing in the sector,” said Campbell.
With the weakness in both lumber and pulp, the Canadian industry reported a combined 2008 loss of $4 billion, compared with a $900 million loss in 2007.
For the global industry, the $8 billion loss in 2008 represented a 157 per cent swing from a $14 billion profit in 2007.
Weaker loonie a positive
The drop in the Canadian dollar late last year helped Canadian producers, and “was the one bright light,” Campbell said. The dollar averaged 98 cents US for the first nine months of 2008, but fell to 83 cents in the final quarter.
In the first quarter this year, the loonie slipped another 2.5 per cent, encouraging for the Canadian industry because every cent it drops generates $450 million Cdn more revenue for the industry.
Regulators investigating credit card industry March 27, 2009
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The federal Competition Bureau is investigating the credit card industry, a top official told a Senate committee Wednesday.
The agency is looking into whether the card companies breached the Competition Act by abusing their dominant position in the industry, the Retail Council of Canada said. It has been monitoring a Senate hearing into credit cards.
According to the council, the bureau’s deputy commissioner, Richard Taylor, revealed the investigation in Wednesday’s hearing.
Diane J. Brisebois, president and CEO of the council, welcomed the bureau’s investigation. Retailers have made many complaints about the credit card companies’ fees, she said in a news release.
“As merchants across the country are struggling to survive, VISA and MasterCard have used their dominance in Canada to drive up the fees merchants and consumers pay to use the cards.”
MasterCard Canada has been defending the industry. “The many benefits Canadian merchants receive from card acceptance continue to be downplayed,” president Kevin Stanton said in a release Wednesday.
The company has a website, InterchangeTruth, where it rebuts complaints about the interchange fee, the amount retailers pay card companies for accepting card payments.
As well as her Retail Council position, Brisebois chairs the StopStickingItToUs Coalition, led by the council. Its website said “consumers paid over $4.5 billion in hidden credit card fees last year alone ? fees we all pay at the checkout to cover the cost of lavish incentive programs and corporate credit card benefits, even if you don?t have one!
“Now these companies want to raise these skyrocketing hidden fees. With their plan, you pay more, your local retailer pays more and the only ones getting rich are the big credit card companies.”
But InterchangeTruth said interchange “is a small fee” which covers part of the card issuer’s risks and costs incurred to maintain cardholder accounts.
“Recent information produced by retail lobbyists contains inaccurate, incorrect, and partial information which seriously misrepresents the reality of the payments market,” the site said.
It rejects the idea that the company gets money from the fees. “MasterCard does not receive any revenue from interchange or merchant fees. The retail lobbyists? statements are wrong,” the website said.
Australian fee cut hurt consumers
It also attacks the Australian cap on credit card fees banks can charge businesses and consumers.
The idea has received some support in Canada, but MasterCard said it was a mistake because “retailers pocketed the reductions and prices didn?t come down.”
The Senate committee on banking, trade and commerce announced March 3 that it would study the credit and debit card systems “and their relative rates and fees.”
The Commons standing committee on industry, science and technology is looking into a proposed change to the Interac debit card system.
Interac is consulting with the Competition Bureau about changing from a not-for-profit structure to a for-profit operation, and the committee wants to look at the impact on debit card fees paid by retailers.
It will also consider credit card fees paid by retailers, but won’t be studying the rates and fees card companies charge consumers.
