Coronavirus hit on the energy sector isn't helping Canada's economy: AGF CEO
A miserable end to 2019 is turning into a gloomy start to 2020 for some of Canada’s biggest exporters.
Business leaders waved good riddance to last year after global trade tensions and a railway strike stymied business and exports. Economic growth in the fourth quarter is expected to be a measly 0.3 per cent on an annualized basis when data is released on Friday, according to estimates compiled by Bloomberg.
While a tentative trade deal between China and the U.S. had boosted optimism, that is fading amid the coronavirus contagion and more disruptions on the country’s rails, this time from protesters opposed to a natural gas pipeline.
Corporate executives are only beginning to get a handle on the damage, and much will depend on how quickly the virus can be brought under control so that normal trade and travel can resume. Here are thoughts so far from Canadian companies doing business overseas.
Chuck Magro, chief executive officer of the world’s largest supplier of crop nutrients, is watching the impact of the coronavirus “hour by hour.” The biggest effects so far have been on potash, he said.
“We believe that the contract negotiations will move now from the first quarter to the second quarter and that’s simply because most of the buying committee, large organizations are working from home,” he said at an industry conference Wednesday. “Our sales organizations in China are working from home. They’re not meeting.”
Potash is stuck at its China port because the supply chain is down, he said.
“Just a couple of days ago the Chinese government authorized for the first time in five years the use of strategic reserves in potash. We interpret that as an indication that China is worried they don’t have enough potash for the spring season.”
In the long run, that will be good for the potash industry as reserves will need to be restored, he said. Agriculture is not correlated to economic growth, he added. “The old adage that people need to eat still holds.”
Teck Resources Ltd.
Bad weather, blockades, and the virus created “the perfect storm” for the Vancouver-based producer of coal, copper and zinc and Canada’s largest railway customer, CEO Don Lindsay said.
“Commodity prices were negatively impacted by global economic uncertainty in 2019. This has continued into 2020,” he told analysts on Feb. 21. “There were some signs of improvement in December and early January with an agreement on a U.S.-China Phase 1 trade deal but then the coronavirus emerged and the full impact of the virus is still unknown.”
Before the virus, Lindsay said, the company’s plan was to sell at least one asset this year, possibly using the capital for share buybacks. “With coronavirus still prevailing, I think most people are going to...wait and see how that shakes out. It’s still unknown what the long-term effect is, not just the disease itself,” he said.
The miner’s shares are down 39 per cent this year.
Lululemon Athletica Inc.
Most of Lululemon’s 38 stores in China remain closed since first shutting down due to the virus on Feb. 3., though some are coming back on a reduced schedule, CEO Calvin McDonald said.
“The safety of our people is our highest priority, and we are adjusting store operations based upon the recommendations of local authorities,” McDonald said in a statement on Feb. 21.
The Vancouver-based company’s US$1 billion international sales opportunity is being led by China, according to Bloomberg Intelligence. “China’s performance- and sports-inspired apparel market is worth almost US$87 billion, and management aims to connect with 400 million active millennials,” analysts Poonam Goyal and Abigail Gilmartin said in a report.
McDonald said he remained confident in the long-term opportunities in China. The company will provide an update on the impact in its earnings report for the fiscal fourth quarter, which ended Feb. 2. That call is expected next month.
Lobster Council of Canada
The number of cargo planes flying into Halifax, Nova Scotia, and Moncton, New Brunswick, to be loaded with lobster bound for China has dwindled, said Geoff Irvine, executive director of the industry group. While the airports would typically see about nine charter flights a week, that has dropped to one a week in the past month, he said.
China has become Canada’s second-biggest export market for live, processed and frozen lobster next to the U.S. While February is typically a slower month for sales, lobster companies are storing the additional unsold inventory or sending it to be processed, Irvine said.
“The Chinese in general are not going out to eat so they’re not consuming lobster in restaurants,” Irvine said by phone. “That’s hopefully going to change as they go back to work and the quarantines end.”
Canada shipped more than $450 million worth of live lobster to China in 2019, according to Statistics Canada data.
Barrick Gold Corp.
Barrick is benefiting from its experience with highly contagious diseases such as Ebola to help it deal with the coronavirus, CEO Mark Bristow said in comments following a Bloomberg TV interview at a conference Feb. 24.
In addition to expanding its health checks across the entire organization, Barrick is increasing supplies of raw materials such as cyanide and cement at its mines, Bristow said. The company will have three to four months worth of those “consumables” on hand, compared with the one-and-a-half months it normally keeps, he said.
“The thing about these epidemics is that you have to respond before they hit you,” Bristow said. “We have an emergency action plan.”