Canadian Commodities Complex and Outlook into 2023
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Canadian Commodities Complex and Outlook into 2023

With the growing prominence of de-globalization, balkanization, and more narrowly focused economic arrangement themes, that potential resource base within one’s borders looks to become more important versus reliance on imports, especially from countries outside alliances and trade blocks. These dynamics augur well at a time when parts of the Canadian housing market are decelerating and questions exist for mortgage origination levels along with related dynamics.

With a Canadian-centric view, an abundance of multiple natural resources and a somewhat small population base (~38m people for a ~38-40 global rank) could bode well for a resurgence in economic growth from these varied themes. Five major areas were addressed in this report: Commodity Considerations, Clean Considerations, Accelerated Immigration, Talking Trade, and Honing-In on Housing. 

In terms of commodities, with ~40% of the Canadian equity capital market being commodity-oriented, along with broader economic impacts, current commodities look to be supportive of overall market performance. In addition, many efforts are underway to transform Canada’s industrial complex to become greener (in many respects). In this context, there is considerable focus on battery technology. These advantages are gaining considerable political and investor interest. Hence, under clean considerations, given the concerns of energy transition, current fossil fuel needs along with security of supply, the use of CCS with oil sands related production (and other hydrocarbon production) look to provide a unique positioning versus many other geographies

From our perspective, the immigration situation is core to Canadian economic growth potential and the impacts from the COVID pandemic with net inflows being minimal exacerbated some key measures. Canada’s trade relationships are dominated by the US, which is completely logical given the proximity and the population difference (roughly 10x) across the world’s longest undefended border. Given some of the past (largely Trump era, but also in other US administrations) risks, Canada has broadened out several trade relationships. Lastly, the Canadian housing market is declining and even with the plans to grow supply, there are current issues regarding the amount of debt associated with the housing market. A focus on these factors that encompass relatively unique aspects of the Canadian equity market bode well thematically for Canada’s continued economic growth, in our view.

@Andrew Kuske

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