Commodity traders think about the United States for natural gas, Saudi Arabia and other Middle Eastern nations for oil, Africa for gold, and Asia for foods such as rice. In doing so, they sometimes ignore commodity-rich Canada.
Canada is the second-largest country by land mass and has the tenth-largest economy in the world in 2015 according to the IMF. The country has a wealth of natural resources, making it a large energy and minerals exporter. For commodity traders looking to invest primarily in North America, Canada presents a compelling opportunity.
Canada’s Top Commodity Exports
Energy products are the largest of Canada’s exports, earning approximately $128.79 billion per year. Although Canada increased energy product exports to China by almost half from 2008 to 2010, the United States remains Canada’s principal energy destination due to its close proximity, ease of transfer though pipelines, and the enormous energy demand from its southern neighbor.
- Crude Oil: Crude oil is Canada’s largest commodity export, with an annual value at about $100 billion per year. Canada’s oil industry produces 4.3 million barrels of crude each day, making it the fifth-largest crude oil producer on the planet. The United States is the top importer of Canadian oil followed by Russia and the United Kingdom.
- Natural Gas: Natural gas accounted for $11.2 billion (in Canadian Dollars) in total exports in 2013. Canada’s natural gas exports have slowly decreased, which could be explained by the U.S. natural gas boom. In 2013, Canada only exported 80.9 billion cubic meters of natural gas, a 7% drop from 2012. [see also 25 Ways To Invest In Natural Gas].
- Coal: Canada has 24 mines producing 68 million tonnes of coal each year (data according to the Coal Association of Canada). In 2011, Canada exported 33.6 million tonnes—almost 25% more than in 2009. Asia is Canada’s largest coal-trading partner, accounting for nearly three quarters of total exports.
- Gold: Although none of the world’s 10 largest gold mines are located in Canada, the country produced 160 tonnes of gold in 2014, making it the fifth-largest gold mining country in the world. Most Canadian gold comes from underground and open-pit mines in the provinces of Quebec and Ontario.
- Maple Syrup: Our neighbors to the north are also the world’s largest producers of maple syrup, providing more than three-quarters of the global supply. Primarily centered in Quebec, the 2013 harvest was valued at approximately $408 million, comprising more than 32,000 agricultural businesses. The overall size of the market does not make this a large-scale export but the near-monopoly Canada holds is notable.
Canada’s Top Commodity Imports
The United States actually provides more than half of all Canadian commodity imports. Canada is the twelfth-largest commodity importer in the world.
- Crude Oil: Canadians imported approximately $23.139 billion worth of oil in 2010 despite also being one of the world’s leading exporters. This is due in part by pipeline routes and slight rate variances with the U.S. Imports take place primarily in the winter months when heating energy needs increase and, to a slightly lesser extent, during summer months during peak driving months [see also Crude Oil Guide: Brent Vs. WTI, What’s The Difference?].
- Natural Gas: Canada imported nearly 2.5 billion cubic feet of natural gas each day in 2012 while maintaining a positive trade balance on the commodity with the United States. Canada’s policy is that when natural gas prices fall, it imports more natural gas but spends less on it. The majority of Canada’s natural gas imports come from the United States.
- Electricity: Canada and the United States share an integrated electrical grid serving as importers and exporters to each other in order to meet nearly all of each other’s electrical energy needs. This not only provides for the energy needs of each country but also serves as a key element of national security.
- Food Products: The country imported more than $39 billion in agri-food products in 2014. Canola and non-durum wheat top the list. Soybeans, pork, bread, coffee, and frozen snow crabs are among the many other food items imported from the United States and other countries [see also 50 Ways To Invest In Agriculture].
Ways to Play the Market
Below, we outline several ways to make a play on Canada’s massive commodity industry.
- Guggenheim Canadian Energy Income (ENY): ENY is an ETF that seeks to replicate the performance of the Sustainable Canadian Energy Income Index—an index of 40 securities listed on the Toronto Stock Exchange representing the Canadian oil and gas industry.
- IQ Canada Small Cap ETF (CNDA): This small-cap fund puts the majority of its assets in Canadian firms that fall under the energy and basic materials sectors.
- MSCI Canada Index Fund (EWC): This ETF focuses on broad Canada exposure, but almost half of its assets are dedicated to the energy and basic materials sectors.
- Gold Explorers ETF (GLDX): A fund that invests in gold exploration companies, nearly 95% of GLDX’s assets are dedicated to Canadian firms.
- Market Vectors TR Gold Miners (GDX): The mega-popular gold mining fund has over 50% of its assets in Canadian companies.
- Pengrowth Energy Corporation (PGH): PGH explores and develops oil and natural gas reserves in Canada. PGH owns and operates thousands of oil and natural gas wells in Alberta, British Columbia, Saskatchewan and Nova Scotia.
- NovaGold Resources Inc. (NG): NG is a miner of gold, silver, copper, zinc and lead ores primarily in Alaska and British Columbia. The company is headquartered in Vancouver, British Columbia.
- TransCanada Corp. (TRP): TRP operates natural gas and oil pipelines in the United States and Canada. It currently owns 68,000 kilometers of natural gas pipelines and nearly 3,500 kilometers of crude oil infrastructure, in addition to rights to build the Keystone Pipeline system from Canada to the Gulf Coast. In addition, TransCanada has interests in power plants which would significantly diversify their business.
Canada is the second-largest country in the world by land mass and contains a wealth of untapped natural resources. In northern Canada alone, $100 billion is being poured into diamond mines, uranium exploration, new gas wells and pipeline projects over the coming years. All of this points to some exceptional commodity trading opportunities. Canada is in the rare position of owning a developed and modern economy that includes manufacturing, banking, and service fields in addition to an abundance of natural resources.
Disclosure: Photo courtesy of Matthew Gordon. No positions at time of writing.