FACTBOX: Canadian commodity markets brace for potential railway shutdown

A potential shutdown of Canada's railways has started to impact commodity prices and trade flows ahead of an Aug. 22 deadline for labor talks.

Canadian C5 condensate prices rose to their highest in eight months; wheat trading activity has stalled from the uncertainty; and fertilizer makers are preparing for potentially steep revenue losses.

Canadian National Railway and Canadian Pacific Kansas City — two of the country's largest rail carriers — are at an impasse with Teamsters Canada workers over wages and safety concerns. CN Railway notified Teamsters of its intention to lock out workers Aug. 22 unless an agreement or binding arbitration is reached. The Canadian Federation of Independent Businesses and other groups have called on the federal government to step in to prevent the shutdown.

"The Canadian railway system is critical for the Canadian economy and any disruption will have wide-ranging impacts on manufacturing, agriculture and numerous commodities, including propane and butane," said Bill Rawlusyk, executive director for North American NGL at S&P Global Commodity Insights.

How the looming strike is affecting prices and flows of different commodities:

Oil and gas

• NGLs and condensate are more exposed to disruptions in rail transport than crude flows.
• Canada exports about 210,000 b/d of propane and 50,000 b/d of butane, with over 90% of the flows moving by rail car, according to Commodity Insights analysts.
• Midstream companies such as Altagas and Keyera have said they are preparing for rail interruptions, but would eventually be unable to load product if a strike is extended.
• Western Canadian heavy oil and bitumen producers are seeking alternatives to ship their barrels to markets.
• Platts, part of Commodity Insights, assessed Aug. 20 the differential for Canadian C5 condensate in the Edmonton/Fort Saskatchewan area at a discount of $1.70/b to the NYMEX WTI CMA, its strongest since Dec. 6, 2023.
• Canadian crude sources do not expect the potential strike to affect overall oil prices, due to sufficient pipeline capacity following expansions to the Enbridge pipeline system and the 590,000 b/d Trans Mountain pipeline.

Agriculture

• Canadian wheat exporters were having difficulty securing offers ahead of the strike.
• Platts assessed 13.5% CWRS wheat FOB Vancouver (30-45 days forward) at $265.48 per metric ton on Aug. 20, steady from Aug. 9, when Canadian rail workers were deemed non-essential and the 13-day cooling off period required to strike began. The onset of the harvest typically puts downward pressure on prices.
• Grain market sources were told it would take two days to clear the backlog for each day of shutdown on the rail lines, and alternative routes by truck were unlikely to be a viable option.
• Canada's corn and soy flows are not affected, as they move by truck to St. Lawrence port terminals, and harvest has yet to start.
• The Canadian rail strike has potential to overlap with looming labor strikes for US East Coast and Gulf Coast ports, which, if realized, could cause shipment delays as the US grains market enters its harvest season.

Fertilizer

• The disruptions are expected to cost the Canadian fertilizer industry up to C$63 million ($46 million) per day in lost sales revenue, industry group Fertilizer Canada said Aug. 20. According to the group, 75% of fertilizer produced and used in Canada is shipped by rail, and alternatives are limited.
• Canada is among the world's top producers of potash, a key fertilizer ingredient typically mined underground. In 2022, the country produced 24.6 million metric tons of potash, accounting for 38% of global production, data from the Ministry of Energy and Natural Resources of Canada showed. Canada's potash exports of 21.3 MMt in the same year represented 46% of the world's total potash exports, according to government data.

Biofuels

• A prolonged strike could hamper US ethanol export demand, as Canada remains by far the largest market for US supplies. Most US ethanol exports to Canada flow from Midwest plants via rail. "A strike could temper the bullish viewpoint [ahead of fall plant maintenance] to some extent," said a market source.
• Redirection of ethanol flows away from Canada could slow US rail turnaround times and raise freight rates.