VANCOUVER - May 4, 2005 - Continuing strong growth in China will help offset the negative effect of slowing U.S. economic growth on British Columbia's exports over the next two years, according to a provincial export outlook from Export Development Canada (EDC). "64 per cent of British Columbia's exports are destined to the U.S.," says EDC Senior Vice-President and Chief Economist Stephen Poloz, "so it's inevitable that B.C. exporters will feel the effect of a U.S. slowdown. But the news isn't all bad," added Mr. Poloz, "since China has picked up some of the slack with its robust appetite for B.C.'s metallic minerals, machinery and electrical equipment exports." Much of the softness in B.C.'s export outlook comes from the forestry sector, which accounts for 47 per cent of B.C.'s exports. A retreat of forestry prices will pull overall export growth down to 1 per cent in 2005 and will help generate a 2 per cent decline in 2006. Solid demand, low inventories, high energy prices and meagre freight availability have conspired to keep prices elevated so far this year. But the expected decline in U.S. housing starts should cool demand going forward. On the supply side, while truckers in Vanderhoof, Mackenzie and Quesnel have returned to work, strike action in Prince George continues to threaten log supply for 10 mills. This is on top of unseasonably warm weather in the interior, which has limited access to the woods and made log inventory building more difficult. The resolution of the softwood debate would constitute an upside risk, encouraging investment in new production capacity. The next major step is the ruling of NAFTA's Extraordinary Challenge Committee. But even if Canada wins this final appeal, a reimbursement of the sums already collected is not necessarily a certainty. B.C. alone pays CAD 1.4 million per day, or almost CAD 42 million a month. The strong yen and steady demand out of Asia will help the province diversify, lowering its dependence on the American market. "Strong demand out of China, India, South Korea and Taiwan for gold, copper, zinc and molybdenum will help offset imminent softness in the forestry sector," noted Mr. Poloz. "While China accounts for only 5.2 per cent of total B.C. exports, mineral-related sales to China have jumped by more than 700 per cent in the last 10 years, versus a 40 per cent drop in sales to Japan," added Mr. Poloz. Strong Asian demand and the accommodative credit environment south of the border should also help shore up demand for the province's machinery and electrical equipment manufacturers, accounting for 7.5 per cent of total exports. Furthermore, elevated commodity prices have led to a more favourable tax and regulatory environment for exporters. As well, higher metal prices have encouraged new exploration and development. "Adding to the 50 per cent increase in exploration in 2004 are a total of 13 projects currently undergoing environmental assessments, as well as the reopening of some closed mines," observed Mr. Poloz. "More good news could be in store as the province continues to work with Ottawa to ensure adequate rail and port capacity," added Mr. Poloz. One mineral that will see an increase in export receipts over the forecast period is coal, which generated CAD 1.6 billion in 2004. Thanks in part to Chinese demand for coking, three new mines have opened since 2002, and nine more are in development. With 25 billion tonnes of proven coal reserves and new investment in the Prince Rupert port, it is thought that the province has the scope to expand its coal exports by as much as 60 per cent in the next few years. Although natural gas exports are still far behind those of Alberta in volume terms, British Columbia leads the country in production growth. The province is expected to increase its oil and gas wells by 8 per cent this year. The burgeoning natural gas industry is a result of attractive royalty and tax schemes, and some activity in the Foothills region in the northeast. Recent discoveries have uncovered reserves in the order of 800 billion cubic feet, with some government figures showing that the province may have coalbed methane deposits of as much as 89 trillion cubic feet (Tcf). In addition, the province's Offshore Oil and Gas Team has started talks with First Nations living along the coast, in hope of getting the moratorium on offshore drilling lifted, to open access to 35 Tcf in potential offshore reserves. "No significant growth is expected in natural gas exports in 2005," noted Mr. Poloz, "but one has to keep in mind that export receipts are holding steady from a base that jumped 50 per cent in 2003," he added. Nationally, the economy is expected to grow by 2.4 and 2.9 per cent in 2005 and 2006, based on good domestic economic fundamentals. In turn, Canada's export volumes should grow by 3 per cent in both 2005 and 2006. A copy of EDC's Global Export Forecast is available on EDC's web site: http://www.edc.ca/docs/ereports/gef/EFindex_e.htm EDC is a Crown corporation that provides trade finance and risk management services to Canadian exporters and investors in up to 200 markets worldwide. -30- Media Contact : Glen Nichols EDC-Public Affairs Telephone: (613) 598-2876 email: glnichols@edc.ca
