04/03/2018

Natural Resources : the Rise of the Canadian Investor

Five years after the peak of the commodity boom, the investment climate has changed in Canada. Activity has slowed, the dust has settled, and the new landscape of natural resource industries is now more visible. Foreign investors appear to be spooked by Canadian infrastructure bottlenecks and some are probably lured by the new regulatory and fiscal easing south of the border.

Foreign investors: in free fall

Industrial investment in Canada, as determined based on investment announcements, shows a sharp drop in foreign direct investment—and more specifically, in capital expenditures. In fact, foreign investment in Canada in 2017 was 10% of the peak level of 2013 in the industrial sectors.

New Industrial Megaprojects – Canada – 2008 to 2017

 

While new large-scale investments are apparently at recessionary levels¹, the situation is far from negative for investors who have successfully completed their projects.

• Oil. Despite the withdrawal of several large foreign investors², despite the abandonment of major projects, despite the apparent blocking of export capacities, production and exports reached historic highs with volume growth of 9% and 10% respectively in 2017. Obviously, everything is not as bad as some feared.
• Downstream oil processing. Although Canada’s oil refining capacity has remained largely stagnant, if not in decline, for more than 50 years, production capacity is on the rise for plastic resins feedstocks at the Strathcona and Sturgeon County, Alberta and Sarnia, Ontario petrochemical complexes.
• Natural gas. The window of opportunity that opened a few years ago is almost completely shut now and more than 15 LNG terminal megaprojects have been shelved. Two or three projects may still be coming up in the next decade and could be on both the West and East coasts.
• Minerals. Despite some recovery in 2017, prices for Canada’s key minerals fell back to 2006 levels. As a result, almost all major projects announced, but that did not reach construction stage are on hold, for all practical purposes. And yet … new Canadian mining operations are benefiting from the CAD/USD exchange rate and from energy costs that are much lower than anticipated when the projects were launched. Even though major iron and potash projects are on hold, we haven’t heard the last of projects involving minerals linked to energy innovation (e.g., lithium).

After the period of robust growth in resource-industry production capacity since the beginning of the decade, resource industries in Canada are now limiting capital expenditures and raking in profits. Some projects are emerging but will move ahead only once the medium-term economic outlook has stabilized.

Overall, the period saw the rise of a major Canadian-owned resource industry, which is here to stay. Even without having access to the same financing and marketing networks as their major international competitors, Canadian investors continue to thrive in an institutional, regulatory and competitive environment that is certainly more restrictive than in some competing regions. In fact, Canadian investors are regaining a dominant share, with nearly 80% of the value of the megaprojects emerging in Canada over the next decade³).

New Edition of
MEGAPROJECTS OUTLOOK – CANADA:

Foreign investors running for the exit