Good morning. Oil prices continue to surge as the war in the Middle East could potentially push prices to demand-destruction levels of US$200 a barrel. We’re watching Canada’s energy vulnerabilities and opportunities, how this crisis is affecting fertilizers and farmers, and its role in the Bank of Canada’s interest rates. To soften the blow, we’ll wrap up with some good news on IPOs.
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In the news
Real estate: New data from Equifax Canada show that homeowners with stronger credit scores are increasingly defaulting on mortgage payments.
Financial crime: Law-enforcement agencies in Canada, the U.S. and Britain are teaming up for a week-long blitz aimed at tackling cryptocurrency investment scams.
Middle powers: Canada and five other Nordic countries are vowing closer collaboration as a middle-power bloc after Prime Minister Mark Carney joined in a summit on Sunday in Oslo.
An LPG gas tanker at anchor as traffic is down in the Strait of Hormuz, amid the U.S.-Israeli conflict with Iran, in Shinas, Oman, March 11.Benoit Tessier/Reuters
In focus
Hi, I’m Kate Helmore filling in for Chris Wilson-Smith today. In our usual Monday fashion, here are five files that I think are worth watching this week.
1. Canada’s second chance in the global LNG race
Canada is the fifth-largest producer of natural gas but ranked 19th out of 24 countries in exporting LNG last year, reported The Globe and Mail’s Brent Jang. A lot of this comes down to a failure to build LNG export terminals, a race Canada resolutely lost to the U.S. a decade ago.
While in the U.S. eight LNG export terminals have opened since 2016 – and another four are slated to be operating by 2028 – the only LNG export terminal running so far in Canada is the Shell PLC-led LNG Canada project in Kitimat, B.C.
But opportunity might favour Canada once again as the war in Iran has driven an energy crisis and put a fire underneath Canada’s energy sovereignty policy.
The Strait of Hormuz was effectively closed shortly after the United States and Israel launched attacks against Iran on Feb. 28, causing skyrocketing energy prices. Iran has said the strait, through which one-fifth of global oil exports normally pass, is open to all except the United States and its allies. The U.S. has so far received lukewarm commitments from allies in response to calls to protect the waterway.
While the crisis is bound to have negative effects on Canadians (more on that next), it is an opportunity for a country with abundant LNG reserves.
“The opportunity has come back around again, because of geopolitics and just surging demand for natural gas,” said François Poirier, chief executive officer of TC Energy Corp.
2. Why energy superpower status can’t fully protect us
The situation in the Strait of Hormuz means the world is in the midst of the “largest supply disruption in history,” said the International Energy Agency.
Asian countries are taking the brunt of the pain because roughly 85 per cent of the oil passing through the Strait ends up in these markets. Nepal is rationing cooking gas, Myanmar has enforced alternative driving days based in licence-plate numbers, Bangladesh is capping fuel purchases and China has ordered its state-owned energy companies to suspend fuel exports to conserve supplies.
The question is how this will affect Canada, an energy superpower that is nonetheless vulnerable to export restrictions, reported The Globe’s Jason Kirby, Mark Rendell and Jeffrey Jones.
Canada is a long-time exporter of oil. A jump in prices squeezes consumers the same way it does in other countries, but it spells opportunities for industry – it boosts the profits of oil and gas companies, generates royalties and tax revenues for governments and lifts Canadian exports.
But timing is key. It would also take more than a two-week jump in prices before producers responded by investing in more production, sources told The Globe.
3. Bank of Canada expected to hold rates steady
Because central banks tend to look past commodity price shocks when setting monetary policy, the Bank of Canada is expected to hold interest rates steady at 2.25 per cent come Wednesday.
However, the question will be whether the BoC is taking lessons from the previous drastic supply shock. The global pandemic rippled throughout the economy and sent prices soaring. Monetary policy did not keep up, and inflation got out of control.
Governor Tiff Macklem is monitoring the situation closely, reports The Globe’s Mark Rendell.
“They’re going to have to sound more hawkish in the sense of saying, ‘If we see any of this becoming broad-based and there’s a move up in [inflation] expectations, then we might hike,’” Paul Beaudry, a former Bank of Canada deputy governor and an economics professor at the University of British Columbia, told Mark.
4. Iran conflict is also driving up fertilizer prices
Roughly one-third of all traded fertilizer passes through the Strait of Hormuz, in addition to several inputs essential to the production of fertilizers, such as sulphur.
For the agriculture beat, I reported that the timing could not be worse for North American farmers who need crop nutrients to begin the spring planting season. These farmers are also facing near-record-low crop prices.
Retailers, analysts and economists are therefore asking how much more the farmer can take before escalating production costs eat into the demand for fertilizers, cause the shuttering of businesses and the depletion of soil health that has already been steadily eroded by a volatile five years for fertilizer prices.
This also suggests opportunities for Canadian fertilizer giant, Nutrien. A major producer of nitrogen, it could stand to gain as Canadian supplies of LNG – critical to production – are more stable than the imported supplies Nutrien’s European competitors depend on. However, demand destruction for crop nutrients is bad for any fertilizer giant, and would have an impact on sales of the company’s number one crop nutrient: potash.
5. Metatek Group to launch first TSX tech IPO since 2021
Canada is getting its first tech-sector initial public offering in nearly five years, Jameson Berkow reports.
When Metatek Group Ltd. starts trading on the Toronto Stock Exchange under the ticker “MTEK” this week, it will mark the first tech IPO on the TSX since November, 2021.
Pricing details will be decided closer to the debut, but regulatory filings said pricing is expected to be between $5.75 and $6.25 per share.
A successful market debut for a tech company, in particular, would help turn the page on a difficult chapter in Canadian tech IPO history. However, whether Metatek represents the first of many tech IPOs after a years-long drought remains to be seen.
Charted
Historic Crash
Canada’s exports of automobiles tumbled in January to the lowest level in more than four years, marking the steepest decline since Trump took aim at the sector. According to Statistics Canada, the value of passenger vehicle exports fell 33 per cent, or $1.3-billion in January, contributing to a larger-than-expected $3.6-billion trade deficit.
Quoted
I grew up in Bluegrass Country, and Ireland is the only other place where I’ve seen Kentucky’s rolling green hills. It can’t be a coincidence that I appreciate their whiskey as much as I appreciate my bourbon.
— Peter Hottmann, general manager in Canada for Proximo Spirits, parent company of Ireland’s oldest distillery.
Irish whiskey is quietly filling the void of American bourbon.
Morning update
Global markets were mixed as hostilities in the Persian Gulf kept oil prices elevated, clouding an inflation outlook that should keep most central banks on pause at policy meetings this week.
Wall Street futures pointed higher after major North American markets closed down on Friday, while TSX futures were in the red.
Overseas, the pan-European STOXX 600 was down 0.37 per cent in morning trading. Britain’s FTSE 100 edged up 0.02 per cent, Germany’s DAX declined 0.35 per cent and France’s CAC 40 slid 0.57 per cent.
In Asia, Japan’s Nikkei closed 0.13 per cent lower, while Hong Kong’s Hang Seng gained 1.45 per cent.
The Canadian dollar traded at 73.02 U.S. cents.