ST JOHN'S - May 31, 2005 - Newfoundland and Labrador exports are expected to rise 14 per cent in 2005, driven by higher exports of iron ore and energy products, according to the latest provincial export forecast from Export Development Canada (EDC). While this export forecast far exceeds all other provinces in 2005, EDC predicts that provincial export growth will contract by 4 per cent in 2006 - restrained by a weak agri-food price environment and declining energy prices. "After a relatively sluggish year in 2004, Newfoundland and Labrador will see an inspired turnaround in 2005," said EDC Senior Vice-President and Chief Economist Stephen Poloz. "In fact, the province is expected to lead Canada in export growth this year - paced by its high share of energy, commodities and resource-based intermediate goods." A strong pricing environment proved highly supportive for oil in 2004 but a diversion of crude toward Canadian refineries saw international export values fall. EDC's West Texas Intermediate (WTI) price forecast calls for prices to average around USD 45 per barrel in 2005 before pulling back to USD 38 in 2006. With no increases planned for refined production, the export value for these downstream products will move along this price path. Meanwhile, international exports of crude are expected to rebound following last year's production difficulties at Terra Nova. This year, oil production from Terra Nova and Hibernia is expected to be roughly 120 million barrels before rising to approximately 140 million barrels in 2006 with the addition of production from the White Rose production facility. Prices will also weigh on export values, driving energy exports up by 10 per cent in 2005 before falling by a projected 12 per cent in 2006. While the energy sector dominates the provincial export outlook for Newfoundland and Labrador, the agri-food sector is another major industry affecting the forecast for 2005 and 2006. After no change last year, the value of exports of fish and fish products is expected to fall 8 per cent in 2005. Even with continued strong global economic growth, export prices for crab are expected to decline, reflecting continued strength of the CAD and potential for inventory overhang later in the year. Shrimp landings were very favourable last year and the stock appears healthy. "Historically, Newfoundland and Labrador's fish and fish products export industries have been very sensitive to fluctuations in currency, price and the size of the catch. This year will prove no different," added Mr. Poloz. "We are predicting that the benefits of a softening Canadian dollar in 2005 will be offset by a weak price environment and even weaker landings. After an 8 per cent drop in seafood exports in 2005, we expect to see them move up a modest 3 per cent in 2006." Newsprint exports were held back in 2004 as price increases failed to materialize and the CAD strengthened relative to the USD. This year could be a critical year for the industry in Newfoundland as a key industry producer reviews some of its higher cost operations in Canada. At the time this forecast was completed, the review was in process. Since that time, it has become clearer that production will be negatively affected. This fact aside, supplier inventories remain well below historical levels, and while increased demand is evident, todate it has come in weaker than expected. The net effect is expected to see prices move up approximately 11 per cent and 4 per cent over the next two years, taking newsprint exports higher. As expected, lumber exports - a relatively small industry - displayed a solid rebound in 2004 on higher prices and rebounding output following major mill shutdowns in 2003. Additional volume gains are expected in 2005, more than offsetting low double-digit price declines forecast for this year. Iron ore dominates the province's industrial good exports, accounting for well over 95 per cent of the sector's total export value. In line with its torrid expansion in steel production, Chinese demand for iron ore has at times appeared insatiable. The price of steel moved well above historic norms, improving the profitability of steel producers all over the globe. This has resulted in considerable price increases for iron ore in 2005. Indeed, some key global producers have been successful in negotiating massive price increases effective April 2005. Iron ore exports will also benefit this year from a rebound in output following last year's labour disputes in the province. Our forecast for growth in iron ore export value now stands just under 80 per cent in 2005 but this could prove to be conservative. Although Voisey's Bay is expected to begin production later this year, all nickel ore will be shipped to other provinces for processing, and will therefore not add to international exports. 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 : David Martinek EDC-Public Affairs Telephone: (613) 598-6829 Cell: (613) 294-9382 email: dmartinek@edc.ca
