BC Resource Companies Benefit From Rising ‘Supercycle’ Prices
Soaring commodity prices are reflected in healthy profits for large British Columbia forestry and mining companies, but consumers pay the freight
The prices of off-standard lumber and other commodities produced in British Columbia are skyrocketing, pushing up stock prices and profits for the three big British Columbia forest companies and mining companies in the province
Since March 2020, the price of the Western Spruce-Pine-Fir two-by-fours has dropped from just under $ 400 per thousand board feet to $ 1,600, according to Natural Resources Canada. The prices of other wood products, such as oriented strand board, have also increased.
“North American benchmarks are setting new records every week,” Marc Desormeaux, commodities analyst at Scotiabank Economics, said in a recent commodities perspective.
The good news for British Columbia is that all of the major natural resources it produces are seeing increased demand and prices, which translates into more profits for B.C. producers and more income for them. the Government of British Columbia. The bad news for consumers is that rising commodity prices are fueling inflation, which hit 3.4% in April, a 10-year high.
British Columbia’s most valuable exports are lumber, metallurgical coal, natural gas, copper and pulp, in that order, according to data from BC Statistics. They represent 51 percent of the value of all BC exports. And all of these commodities are in demand, driving prices up, in some cases to all-time highs.
Oil prices have also returned to pre-pandemic levels, and rising gasoline prices are part of the inflation picture. The Conference Board of Canada says high oil and gasoline prices are the main driver of inflation in Canada, followed by high lumber prices driving up the cost of home construction.
Like lumber, copper prices set a new record. In mid-May, copper hit an all-time high of US $ 4.75 per pound. Metallurgical coal prices averaged US $ 125 per tonne in 2020, and Scotiabank expects these prices to hold steady in 2021 and reach US $ 140 per tonne in 2022.
Natural gas prices in North America were on average US $ 2.13 per million British thermal units (MMBtu) in 2020 and are expected to reach US $ 2.70 per MMBtu in 2022.
Some analysts are now predicting a “supercycle” of raw materials, especially for industrial metals.
“In the longer term, looking at something like copper, for example, there is also all the electrification, the green energy transition,” Desormeaux said. BIV. “This is something that we believe provides support for the price of copper over the next several years.”
Some inflation is to be expected, given the extent of the global economic contraction resulting from the pandemic and the rebound that is currently taking place.
The concern is that the rebound – which may occur naturally, even without government stimulus efforts, as lockdowns end and restrictions on ordinary consumption increase – may be artificially amplified through monetary policies. and budgetary.
The surge in commodity prices is good for BC and is reflected in soaring stock prices and healthy earnings for BC’s big three logging companies and BC’s largest mining company -British, Teck Resources, which is the largest producer of copper and metallurgical coal in British Columbia.
“It will definitely help our economy continue to recover,” said Jock Finlayson, senior policy advisor for the Business Council of British Columbia (BCBC). “We get a big lift. For Canada, half of what we export is from the commodity industries, and for BC it’s closer to 70 percent, so we’re obviously going to take advantage of that, and you see it in real time. .
However, the surge in commodity prices is not so good for consumers, who are already feeling the effects of rising building material prices, which can increase the costs of housing, gasoline and various other items. consumer goods. The concern, in the longer term, is that an overheated economy could lead to hyperinflation.
China’s early successes in dealing with the COVID-19 pandemic have resulted in its economy reopening earlier than most other countries, which has increased demand for key commodities like copper. (China consumes about half of the world’s copper.)
And now the US economy is expected to grow this year at a rate not seen since the mid-1980s. Goldman Sachs predicts that the US economy could grow 8% in 2021, which has pushed the annual inflation rate to 4.2% for the 12 months ended April 2021. The rate of inflation in Canada is 3.4%.
In response to US $ 1.9 trillion in fiscal stimulus in the United States, Scotiabank now predicts the global economy will experience its fastest pace of expansion in at least 40 years in 2021.