July 13, 2015
While much ado has been made about Alberta industries' respective reactions to volatile oil prices, little focus has been paid to their counterparts to the east.
In fact, a recent forecast by BMO Capital Market suggests potash production and agriculture in 2015 are set up to support Saskatchewan, whose economy is being, "tripped up by the slide in oil prices." The forecast, released in early May, notes oil production in the province is expected to dip by four per cent, yet adds potash volumes will increase by eight per cent and farm-sector growth will normalize after steep production declines in 2014.
"The oil sector is expected to retrench this year amid a much weaker price environment, but other resource sectors are expected to buffer the weakness in oil," says BMO Capital Markets senior economist Robert Kavcic.
The oil and gas industry accounts for roughly 15 per cent of Saskatchewan's GDP, according to BMO. BMO predicts real GDP in the province is expert to grow by one per cent overall this year, just slightly off the 1.4 per cent posted last year. RBC, meanwhile, anticipates a more robust 2.2 per cent growth this year — reduced from 2.8 per cent anticipated at the start of the year, yet still up from 1.1 per cent last year.
In RBC's provincial outlook for March, assistant chief economist Paul Ferley again sources rising potash production behind this year's stronger anticipated results. "Tempering our concern about weak oil production and investment spending in the energy sector are indications that non-energy mining activity, and potash in particular, has rebounded strong late in 2014, with this strength expected to be sustained during the period covered by our forecast," he said.
Ferley also expects more activity in the province's agriculture sector — a four per cent increase in 2015 after a 13 per cent drop in 2014. This comes after wet growing conditions hampered output for most of last year. The decline in 2014 principally was payback for coming off a bumper crop in 2013, although wet growing conditions last year contributed to some deterioration in crop quality.
Interesting, because of its potash and agriculture production, Saskatchewan recently surpassed Alberta as the country's top exporter to countries other than the U.S. According to Industry Canada, Saskatchewan exports totalled $12.6 billion in 2014, surpassing the $11.9 billion post by Alberta. From 2007-14, exports to China and India increased by 233 and 98 per cent, respectively. Volumes also increased to Japan by 58 per cent, Brazil 159 per cent, Indonesia by 107 per cent and Italy by 220 per cent.
In 2014, total merchandise exports hit a record $35.12 billion, up 8.9 per cent from $32.25 billion in 2013. That trend has continued in 2015. Exports from the province have set monthly records for the first three months of the year, culminating in $8.7 billion for the quarter — a 10.6 per cent increase over the same period last year, which is good for second best in the country.
The most significant increases have come in the metal and non-metallic mineral product category, followed by metal ores and non-metallic minerals, consumer goods and electronic and electrical equipment and parts. Perhaps it's not so much a surprise, then, that the province's mining industry is turning out to the be on the most favourable in the world.
According to the Fraser Institute's Annual Survey of Mining Companies, Saskatchewan is the most attractive jurisdiction for mining in Canada, and second most attractive worldwide behind Finland. The annual global survey of mining executives rated 122 jurisdictions around the world based on their geologic attractiveness and the extend to which government policies encourage exploration and investment.
The province improved from the previousyear, where it ranked second in Canada and seventh worldwide. Will that ranking be challenged in coming years? In his 2015-16 budget announcement earlier this year, Saskatchewan Premier Bard Wall promised to review the current potash royalty review, as well as stem investment incentives for the potash industry.
The news has incensed some in the industry, — particularly the province's decision to stretch out the timing that companies have to make deductions for expansions and maintenance spending. Potash Corp of Saskatchewan, for example, is putting the finishing touches on its $6-billion expansion program, yet now expects pretax earnings to be cut by up to $100 million this year.
"Changing the rules midstream impacts the ability of our shareholders to earn a fair return on their capital and undermines Saskatchewan's relative competitiveness," said CEO Jochen Tilk.