US v Canada…Preparing for Round II | Australian Markets

Tensions stemming from Trump’s proposed 25% tariff on Canadian items have cooled. However don’t imagine this problem is over for a second.

Trump has granted Canada a one-month ‘armistice’ to tighten its borders for immigration and drug control.

However as tensions calm and the difficulty fades from the headlines, I feel it’s time to start out interested by ‘round II’ of this battle and what it would imply for traders.

What do I imply?

As you would possibly know, Canada has minerals important for US national security: uranium, oil, copper, coal, and potash.

Meaning this northern neighbour is essential in fuelling the mighty US economic system with its power, important minerals, and farming merchandise (like fertiliser).

With that, Trump needs Canada to be his own, proposing to soak up it because the 51st state of the USA.

When you would possibly dismiss that as a typical Trump blaster, Canada’s Prime Minister, Justin Trudeau, doesn’t assume so…

After being caught on a ‘hot mic’ earlier this month, Trudeau disclosed the very actual risk being made by Trump. There’s nonetheless a lot at stake right here.

So, what occurs subsequent?

Some Canadian leaders, like Premier Doug Ford, are pushing to leverage the nation’s useful resource benefit and restrict important commodity exports to the US.

A kind of retaliation towards Trump’s feedback and trade hostilities.

So, how a lot pull does Canada truly yield over the US?

First, about 85% of US potash fertiliser imports got here from Canada. Canada’s potash is important for feeding America!

One other important side is power.

Round one-fifth of all power within the US is generated by nuclear energy.

In 2023, 27% of uranium bought by america got here from Canada, making it essentially the most important international provider of uranium to the US.

However that’s all small chips in comparison with this…

Canada’s #1 powerplay: crude

You would possibly know that the US is a main crude oil producer. It produces about as a lot oil because it consumes. So why does it desperately need Canadian crude?

Nicely, not all oils are the identical.

You see, Canada is the world’s largest producer of a kind of crude referred to as ‘heavy sour’.

Earlier than Canada, the US held this title. But, a long time of extraction have depleted its heavy crude reserves.

Immediately, US oil manufacturing is especially the ‘light sweet’ kind sourced from its prolific Permian shale basins.

However right here’s the issue for the US and why it nonetheless depends on Canadian imports… Many US refineries had been constructed during a ‘heavy sour’ manufacturing age.

Meaning the nation’s lively oil refineries can’t course of at present’s huge reserves of light-sweet oil! Most of that will get exported abroad or blended with Canadian ‘heavies.’

However reasonably than let its huge community of home refineries collect mud, the US has spent billions upgrading these refineries so it might keep utilizing them.

And to do this it should import Canada’s provide of heavy oil!

So, what’s the consequence?

As weird because it appears, regardless of the US being an oil-producing powerhouse bigger than Saudi Arabia, it stays closely depending on oil imports from Canada.

Because of this the US is NOT thought of an energy-independent nation, regardless of extracting about as a lot oil because it consumes.

And that’s why ‘Round II’ of the Canadian and US trade dispute presents lots of uncertainty within the months forward.

International locations with the ‘commodity advantage’ yield the ability

As you may see, Canada holds a number of aces up its sleeve.

Proscribing heavy crude exports to the US would have a main influence on gasoline costs and the American economic system more broadly.

Who is aware of, this would possibly even have the potential to rival the 1973 Arab oil embargo… A brief ban on oil exports from Arab oil-producing nations to america.

However this time round, being led by the US’s closest ally… Canada!

It’s one other instance of how the world’s largest economic system can’t isolate itself from world trade.

Since America lacks secure provide chains of uncooked supplies and power, Trump’s ‘America First’ agenda will require critical compromises.

And that may give resource-rich nations a a lot more highly effective hand on the negotiation desk. With out Canadian oil, the US can be left with a graveyard of ineffective oil refineries.

Commodities stay the frontline battleground

As you may see, there’s a lot occurring throughout the useful resource sector proper now, and far of it’s tied up in geopolitics and different main world occasions.

And that’s exactly what we’d anticipate at this stage within the commodity cycle.

A part that’s turning more and more bullish.

I’ll do as a lot as doable to cowl these important developments all year long.

However if you’re in search of particular stock suggestions and different tangible alternatives to capitalise on these trends, you might take a look at changing into a paid member of my Diggers & Drillers service.

Right here, readers obtain buy and promote suggestions throughout completely different useful resource shares leveraged to those world trends.

You may study more right here.

Regards,

James Cooper,
Editor, Mining: Part One and Diggers and Drillers