MNI REALITY CHECK: Canada Industrial Recovery Seen, Costs Up

Canadian industry is seen making some headway this year as demand picks up following the pandemic, though some sectors face higher costs from rising energy prices and the federal carbon tax, executives told MNI.

Statistics Canada is due to report Friday that GDP rose 0.4% for a second month in November. The agency is also expected to give a flash estimate for December when more provinces imposed fresh business closures amid rising Covid-19 cases. The central bank has also said the economy likely shrank in the first quarter, though vaccine distribution has underpinned a more solid medium-term outlook.

Key notes from industry leaders ahead of the GDP report due at 8:30 Eastern time:

Gunter Jochum, President, Western Canadian Wheat Growers:

Grain sales in November and December were about normal for the season, he said in an interview. Deliveries by rail were also faster than normal because of a slowdown in container and crude oil shipments, he said.

Luckily, deliveries of supplies like seeds and fertilizers were not thrown off by the pandemic and growing weather was favorable this year.

"After this year's harvest the optimism as far as investing in new equipment or investing in acquiring more land is quite positive, because we had a good crop and also this fall until now the prices for our products has fairly increased," Jochum said.

Some of that optimism is at risk because the federal carbon tax may curb income by up to 20% if that increase is passed downstream. "One of the biggest costs in our industry is rail transportation, and the fuel that railways use they get charged carbon tax on it and they pass it on to customers that use their services, so we absorb the added cost."

Jean-Francois Nolet, Vice-President, Canadian Renewable Energy Association:

"The economy is going to get more active this year and next," after the pandemic curbed demand from "large industrial and commercial" users, he said. Sales were a bit slower for the year as a whole including in November and December, Nolet said.

Demand for renewable energy is very strong because companies need the power and because they want a greener portfolio. "The future looks bright, and ultimately, we see that the market in Canada will remain strong for the next few years," he said.

Most new electricity demand is driven by replacing fossil fuel generation, such as electrifying transportation or industrial processes, he said.

Nathalie St-Pierre, President & CEO, Canadian Propane Association:

Demand has returned more or less to where it was before the pandemic, with volume somewhat normal in most industries with the notable exception of hospitality.

Demand is good across industrial, commercial and agricultural activities, she said.

The pandemic led to some investment delays, including exports to Asia, while Michigan's bid to shut a pipeline supplying much of Eastern Canada is another headache, she said.

Investment also faces uncertainty from Canada's carbon tax, she said. Canada in 2019 said the carbon tax would rise to CAD50 per ton of certain emissions by 2022 and to CAD170 by 2030, and more recently has also committed to being carbon neutral by 2050.