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[music] >> Hello, I'm Greg Bonnell.
Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here. We're going to take you through what's moving the markets and answer your questions about investing.
coming up on today's show, will discuss the outlook for the commodity sector with Jennifer Nowski from TD Asset Management. And in today's WebBroker education segment,Nugwa Haruna is going to show us how you can research the natural resources space on WebBroker.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get all that, let's get you an update on the markets. We'll start here at home on Bay Street with the TSX Composite Index.
we are seeing some pressure to the downside, triple digit loss of 122 points will call that, little more than half a percent. We are seeing crude oil prices pull back today. It's been a choppy ride in the space and for a lot of the oil and gas names. We'll take a look at Suncor, we could have chosen any of them in the energy sector today, feeling some pressure from the price of crude being down again.
3817 for Suncor, you're done a little more than 2%.
The weakness of the energy space isn't just about oil and gas. It uranium plate Denison Mines today under some pressure. At about 57 per share, it's almost 5%.
has been put to the test this week. Of course, Jerome Powell has been in Washington testifying before lawmakers basically saying they see more hikes in the future to bring inflation under control. But right now the S&P 500 up a little more than 1/10 of a percent.
Let's check in on the tech heavy NASDAQ, curious to see what's happening there. Seems to be of a rally in the tech names after taking a bit of a downward path over the last several sessions. You're up almost 100 points on the NASDAQ composite index, or three quarters of a percent.
Boeing though, last time I checked in on the chair, was under pressure.
At 206 bucks and change, they are down 2 1/2%.
There fusillade provider is dealing with a plant strike. Seems to be weighing on the name a little bit today. And that's your market update.
Despite some concerns about tight supply, commodity prices have been a mixed bag.
At many metals, oil and gas prices flat or down year-to-date. Joining us now to discuss what's driving the trend and what it means for companies in the space is Jennifer Nowski, Portillo manager with TD Asset Management. Great to have you back on the show.
>> It's good to be here. Thank you.
>> Let's talk about what you have described as a mixed bag in the space right now.
One of the drivers?
What are we seeing?
>> It feels like much of the debate in the commodity market this year is centred more on the demand side of the equation, with investors evaluating the trajectory and pace of the recovery in China as well asslowing economic growth in the US and Europe.
Now looking at the supply side, yes, the market has had supply growth this year with the project coming online, however, this is being partially offset by shortfalls amongst existing production as well as continue producer disciplining many spaces. Now, commodities can be cyclical, volatile. It's uncertain how long anyone cycle will last. However, when you are-- when we see crosscurrents in the industry, it can be a very interesting time to discuss looking at commodities.
>> That's what we are doing today. You have supply in there, demand. Let's stick with the demand side, particularly the China part of the puzzle. At the beginning of the year, COVID restrictions were listen, people thought it was game on for China's economy, but for the global economy, thinking they were going to want to consume their commodities.
It hasn't gone that way. When do we expect to see the impact of China's recovery?
>> China is very important to the commodities market.
They can be anywhere from 50% of demand for some metals and there are about 16% of global oil demand. But more importantly, they have been a significant contributor to oil demand growth for many, many years now.
You saw that metals prices in particular responded earlier this year when China late last year announced it was moving away from their zero COVID policy, so the metals price started to anticipate some of this recovery. Fast forward to today, year-to-date in China, it is recovering but the pace is somewhat disappointing, particularly to what may be people had expected in the metals market.
If we look on the metal side, there are continued weaknesses in the property sector in China as it works through debt issues.
And on the oil side, although domestic travel has rebounded and recovered in China, international travel remains well below precode levels, and that's partly because of bottlenecks in getting visas as well as a limited number of flights out of the country.
So in light of this weakness in the recovery, the Chinese government is starting to take measures to stimulate the economy, including some rate cuts recently.
These are directionally positive for the commodity market, but I would caution that in the past, China has had very large stimulus measures that really boosted fixed asset investment and at this point it doesn't seem like this is the path they will take.
That's when it comes to their central bank policy, they are doing 10 basis points at a time, we are used to bigger things on the side of the world.
If commodity prices then remain weakened, what are we thinking about some of the energy and mining companies?
How did they fare in an environment like that?
>> Over the past five, 10 years, commodity prices had weakened and many producers had to evaluate their strategies and became focused on cutting costs, cutting CAPEX and strengthening the balance sheet. Those balance sheets got an extra boost the last couple of years when commodity prices were stronger. So as we sit now looking through estimates for 2023, the large Energy and mining companies look like they are going to have net debt of about 0.5 times which is very strong and provides them with some insulation heading into wherever commodity prices may go from here. The other thing to bear in mind is that some prices are still fairly good for producers.
So for example, with oil and coal at $70 and for a large Oil producer that can produce free cash flow yield in the high single digits, which is still fairly robust.
>> In an environment it like that where you are seeing free cash flow for some bigger producers or even at times when commodity prices are firmer, if we are worried about supply, why weren't they investing in that in the past? What are the dynamics in the part of the market?
>> So resource companies have really shifted their mindset. A decade ago it was all about growth, massive investment.
Now, they are very focused on being very disciplined with their investments and generating returns for shareholders. So during the past big domain like this 2012, 2014 period, it CAPEX was very elevated.
The commodity prices were stronger and companies were chasing growth.
And then commodity prices changed and they had to reevaluate all of this and CAPEX got cut significantly.
It came off the lows it reached but it the growth has been modest.
But it's still nowhere near the levels we saw about a decade ago. Why is this? Partly they are learning from past mistakes but it really comes back to again that focus on financial discipline. So the US shale layers, they tend to be shorter cycle, they have realized they run more efficiently at a lower growth rate so 0 to 5% production growth.
Some producers a plan to keep CAPEX within a specific range. And on the mining side, you have the added complication of some projects being very large. It takes a long time to permit. You can change these things quickly. And so when you have periods where we still had commodity price volatility, it makes them hesitant the kind of greenlight those really large projects.
Now the macro implication of all this is that supply growth would likely be limited and that supportive of the price.
> Let's talk about the path forward then for these companies. We are looking at some stronger balance sheets because one of the factors you've outlined, even though there might be a downturn in all of this is cyclical, you got some cash. What do they do with that money? Does a whole host of things you can do with cash in the balance sheet. What you think they will do?
>> I expect the financial discipline to remain in for them to pursue a balanced approach between all three options.
First maintaining that balanced balance sheet.
Second, they will continue to return cash via dividends and buybacks.
We just went through Q1 earnings about a month ago and for the energy companies, that was a key focus of investors, how much cash was coming back. And the third, M&A. So M&A has picked up a bit.
However it's not the big transformational M&A that marked the top of the last cycle.
This sort of M&A, by and large, is more contained. If you look at some of the gold minersor the US and peas, there's a big deal there and those were largely to shore up production and provide inventory for the long term.
On the large diversified minors, there were also some deals and that's usually to get exposure to some metals that they think have a strong long-run profile.
For example, PHP bought house minerals this year which is an Australian copper player.
>> A lot of talk about there is an interesting set. A great start to the show. We are going to get your questions about commodities for Jennifer Nowski and just moments time.
A reminder that you in touch with us at any time. Just email moneytalklive@td.
com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Investors weighing another central bank rate hike today, this time it is the Bank of England. Hiked its trendsetting rate by 50 basis points. It was a bigger move than the market was expecting. It also comes on the heels of another hot inflation report out of Britain.
Meantime, of course, Fed chair Jerome Powell has been in Washington telling lawmakers there that the fight against inflation is far from over, will likely need more rate hikes from the US central bank.
The parent company of Sobeys is raising its dividend payout to investors. Empire Co. is at with its latest quarterly report, profit and same-store sales up compared to the same period last year.
The grocer also saw improved margins on lower costs in its food retail segments.
The company is raising the dividend by some 10%. You can see the stock right now, Empire Co., a but just shy of 3%.
Shares of overstock.com are on the move today. The e-commerce company is going to buy the intellectual property and digital assets of bankrupt retailer bed bath and beyond. This deal is part of a bankruptcy run auction that will also see overstock.com by the chain's brand name. The deal does not include the bricks and mortar assets of Bed Bath & Beyond. You can see overstock right now up 16%.
A quick check in on the markets, we will start your own Bay Street with the TSX Composite Index.
Some downward pressure on crude prices and pressuring the energy names today. We are down hundred and 23 points, little more than half a percent. South of the border, the S&P 500 tried to get some momentum back but that is very modest green on the screen. You're up just a little more than a point or are just three checks.
We are back now in Jennifer Nowski, taking your questions about commodities. There are plenty coming in, let's start get through them.
This one about the situation in Ukraine and the energy crisis.
Has it resulted in any changes in the oil and gas industry?
> The Ukraine invasion and has resulted in some providers and investors evaluating the need to decarbonized versus the shorter-term role oil and gas can play in the economy and the need for energy security and affordability.
so we had to investor days from the major European players, BP and Shell. On the upstream side of things, both of them looked more closely at maintaining existing production levels, with BP backing away from some of its divestiture plans, it plans to remain production flat for the next couple of years. It Shell wants to keep upstream flat for a bit longer.
There is renewed focus on upstream production levels. A more shorter-term and more tangible, adequate nor actually boosted as production in order to help in Europe. However, a major committed to investing geez Wrist. The plans are becoming a bit more focused in areas newer to them, so EV charging, carbon capture.
Longer run, they are looking at options and hydrogen.
They are becoming more focused on the returns these are generating and this is resulting in some changes in their approach to the power market.
>> Interesting changes, obviously a big event there in Europe that has gone on longer than most people anticipated.
We have a viewer with the company specific question.
Can you get your guest to be one Exxon? Not sure. Exxon is very large, globally diversified energy company with both upstream production as well as downstream refining and chemicals exposure, so again, that provides diversification.
Exxon has a very high quality upstream portfolio where they've got good growth in areas like Guyana, the US… Also options in Brazil and LNG. So it really stands out about Exxon though as they are very committed to investing through the cycle and this, they got some challenges from investors on that the past couple of years when oil was at lower levels. However, they have shown that this is their preferred way to generate value over time.
They are also focused on technology.
So they are still working on ways to try to improve efficiency in the Permian and drive that further as well they are leveraging the technology and to some of these low carbon areas, again, like carbon capture.
Another distinction Exxon has is its dividend. It has a very long term history of paying a dividend and it maintained that dividend all through the COVID downturn.
In terms of risks for Exxon, commodity prices will vary. I would say that near term, for the refining side, margins have been quite strong in refining.
However, over the next couple of years globally, there has been an increase in refining capacity so that could be a potential risk. The second is the chemical margin.
So there has been oversupply in that industry.
>> Fascinating when you said investing to the cycle.
This is something we have become unaccustomed to when we look at energy spaces. There has been so much share buybacks and dividend payouts, Exxon, is it going in its own way?
>> they promised shareholders a balance between investing and they basically want to maintain a steady investment profile.
they want to take a long-term view on the oil price and invest accordingly. As you mentioned, very committed to the dividendand shareholder returns as well.
>> Interesting stuff. Another question here. It is company specific as well. Still in the oil and gas base.
What is your guest's view on Suncor?
>> So Suncor is a large player in Canada.
Most of their upstream production is Canadian oil sands but they also have some downstream refineries. Now Suncor did struggle for much of the past year in terms of a operational performance as well as they had some safety issues, unfortunately.
Things might be changing. This year they hired a new CEO, Rich Kruger, and he has decades of experience at Exxon and Imperial Oil, and he will be looking to try to improve that operational performance as well as cut costs. Now, there is some kind of M&A noise right now is Suncor.
So they recently had a bid to acquire the Canadian Fort Hills asset State from hotel as well as sermonic.
However, ConocoPhillips exercised its right of first refusal on surmount so Suncor is reassessing the deal for the Fort Hills steak with tow towel. And so Suncoris looking for ways to optimize its production profile and the use of a, keep its infrastructure well used in the oil sands over the long term.
However, Suncor is in good financial shape.
Got a good balance sheet.
At current oil prices, free cash flow yield is in the teens and it has that 5.4% dividend yield as well as a stock buyback so it's followed that relative shareholder returns as well.
>> Interesting stuff. As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for Jennifer Nowski on commodity stocks and just moments time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com.
Now let's go to our educational segment of the day.
We are discussing commodity stocks on the show today.
If you're looking to research the sector, WebBroker can help.
Joining us now is more is Nugwa Haruna, Senior client education instructor with TD Direct Investing.
Nugwa, always great to see you. Let's talk about how investors can track the performance of natural resource names in the sector using WebBroker.
>> Always a pleasure being here, Greg.
so for investors looking to keep track of the performance of a specific sector, and in this case the natural resource sector, they are able to do that in WebBroker and there are multiple ways to do that so I will show us one of those ways.
let's hop in to WebBroker to take a look. Once in WebBroker, I would click on research.
And once I click on research I jumped right into the sectors and start to take a look at this time you want us to you something different, which is the indices.
an index is essentially a mock or hypothetical portfolio that keeps track of a basket of securities.
So it tends to happen is sometimes a specific sector, they will be companies or stocks from that sector being tracked to give you a general idea of how that sector is performing. So once we are on this page for indices, we do have the major indices and that is our focus today. But our focus specifically is going to be the sole chart appear. I'm going to deselect one of the selections we have.
We are going to keep the TSX comp is it because that will be our base when we are talking about performance.
Now I'm going to click on sector indices. And focusing on the Canadian side, I will start to see some sector indices.
So I want to select to.
So we will start off by selecting the Canadian energy sector index and I'm going to highlight that. And you will notice that once I do that, it is now represented on this little chart.
It's represented by the purple line.
And now this is a comparison on how that is doing compared to the TSX Composite Index.
I will select one more, the global mining index.
And that is now represented by the orange line. Now for investors who want to take advantage of the fact that you have access to US markets, let's also throw on some US indices here. So I'm going to click on the portion that says US sector.
And once I do not, I will superimpose an index for the S and P energy sector in the US, through that on there, and I will add one more here, the US Dow Jones industry and in this instance, I'm going to add the oil and gas.
And when I do that, just coming back to this little chart we have here, you will see that the highest performer, at least in the last one year in terms of the sectors, will be the Dow Jones oil and gas index and a close second will be the S&P global mining index.
So investors then can start to dig a little deeper and see what companies are being held in these indices to research some more.
>> Knew, some interesting tools there for people who use WebBroker to do their research. What if they want to take action on what they are seeing? What would be the approach?
>> Right,so the question you might have might be, I want to buy that index. You are not able to buy an index but what you might be able to do is track a fund or purchase a fund that tracks that index and that's where things like index funds come into play or sector based exchange traded funds. Psilocybin to WebBroker and show investors with a can find specific kinds of ETFs that fit their needs. So in WebBroker, this time we are going to click on research. Under investments, we are going to go ETFs.
So once we are on this page, you have the option of either browsing the Canadian or US side. I'm going to toggle over to the US side is based on what we had seen, the Dow Jones oil and gas index was the highest performing, so let's say you decide to focus on the US side of things here.
This is the overview page.
But I want us to go words as categories. And once you come here and going to flip over to the US side as well.
You will notice that these are the different categories, there's a lot of them, but if you want to focus directly on commodities, you can do that.
I'm going to scroll down. I know where I'm going this time, so we are not going to have to look through every single thing on this list.
And once we scroll down, you will actually see a category for ETS called natural resources and there are 47 ETFs there. I click on this and I brought to the overview page for this.
it gives me a breakdown of what the ETFs is in the specific category, what they are looking to track. We can see things like energy, chemicals, minerals and forest products in the US. So investors can take a look at this, scroll down, start to go through those 47 ETFs, either make decisions based on performance so you can filter this table by performance, we can do that for year to date, to say, okay, give me the best performing ETF in this category year today.
And then once they make the decision, they can click on here and go ahead and make their purchase.
>> Great stuff as always, Nugwa. Thanks for that.
>> Always a pleasure being here. Thanks for having me.
>> Nugwa Haruna, Senior client education instructor with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now before you get back your questions on commodity stocks for Jennifer Nowski, a reminder of how we can contact us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back now in Jennifer Nowski, we are taking your questions about commodity stocks. Plenty coming in.
Let's take a look at this one.
If you want to get your comments on the outlook for base metals.
This is from Trevor who has been sending in questions lately. Thank you that, Trevor.
>> I will specifically focus oniron ore and copper. I would describe those markets as finely balanced.
I mean by that that inventories are normal and that provide some downside support.
But when you look at supply and demand, those are very closely matched and we don't really, it's unlikely to see large deficits or surpluses in either direction.
However, small changes in the supply demand can result in price movements.
So back to the demand side for iron ore and copper, you saw the price respond earlier this year when China was exiting that zero COVID policy but also more recently, both metal prices picked up when there were announcements and rumours about Chinese stimulus.
The supply side, there is some growth coming this year from new projects and copper and iron ore, partly new projects but also the minds living up to their full potential.
Again, this is partially hampered by supply shortfalls from existing production.
Now, the contrast occurs more in the medium and long term.
iron ore is in the global demand growth market and this year they might see more pressure from Chinese steel margins being weak in the property sector.
Copper, on the other hand, is stronger because it is used in elective vacation, renewable power installation, EV charging stations, that creates a stronger demand growth profile.
Once you look out past the projects we know that are under construction and coming online this year and next, the pipeline of construction work in progress looks a little thinner and so that's where you can see demand potentially outweighing supply.
>> When it comes to that copper story and elective vacation, you can't make electricity, as far as I know with my very simple understanding of science, without copper.
Does an investor have to be conscious of the fact that this is going to be a longer-term story and it's going to be may be a choppy row to get that space?
>> You're right.
Secular long-term trends, electrification is one, however there are still cycles. That's why you see all the concern about where the economy is headed whether in China or in the West.
>> This question is came in the last couple of minutes.
What is Jennifer's view on Capstone Copper?
> I think last year the year before, they did a merger with Mentos copper and that brought them some assets in Chile that have very efficient brownfield expansion opportunities that they are working through right now and also longer run potential synergies with capstone Santo Domingo project.
It is a growing company. Of course there are risks to growth. Projects can slip in terms of budget and schedule, so that's something to look out for in that name.
The other one is that it got a lot of exposure to Chile. Now, Chile is a mining country.
They are a large copper producer.
However, over the past year, the government there has made more discussions about trying to increase royalties or taxes on copper producers. So it's just this geopolitical risk that's in the background.
Now that was partially resolved last year.
They settled on their new royalty and tax regimes of that is known at this point but it's one of those geopolitical risks that we have to be monitoring for any copper or metals producer.
>> An interesting breakdown of the opportunities and risks therefore Capstone Copper. Next question.
We've been getting this question a lot lately. Now we have a guest you can talk about it.
Does your guest see any opportunities in lithium?
>> Yeah. So lithium, over the past two years, has been quite the roller coaster.
lithium, would stands out is the demand profile. When you think about lithium longer run, is used in batteries, EV growth, it's a huge driver.
estimates for the long-run demand are obviously, they can be hard to make. You have to make assumptions on battery chemistry, how fast EVs are adopted.
But when you look at them, you could have demand growing at about 20% plus annually which is very strong.
We talk about copper, we're talking about estimates of 2 to 3% demand growth per year. So this is a big a growing industry. The supply side, because of this, there are a lot of opportunities to the lithium companies and they have been investing very heavily and growing lithium supply and as discussed, when you're doing projects, you take on budget and schedule risk and some of the lithium players haven't been great at executing on this project so that the key risk on the supply side.
Now when we look at what has happened with the price of lithium, the price of lithium hydroxide basically doubled last year. Since has retrenched about 50% and now we are rebounding off that low. What happened in a nutshell is that late last year, the Chinese battery makers went through a de-stocking cycle, basically.
They pump I saw an imbalance between where they thought auto sales were going in China versus where they were going. However, now they have started restocking and on top of that, Chinese EV demand is looking fairly robust.
Now what we look for with lithium players, the lithium market is less mature seed and get some players that are a small Developers, production that are more diversified. We also want to see some geographic diversity and vertical integration. However, with the high lithium prices we had in the past year, that's kind of shored up the balance sheets for some of these players. And on top of that, looking aware lithium hydroxide sits today, some of the larger cap names, that sort of price is very good for them. They are covering their growth And they can generate free cash flow at that price.
so there are a lot of opportunities in lithium but you have to be careful about the valuation.
>> our viewers are probably quite pleased with that breakdown. Get that question a lot.
Thank you for that.
A lot of questions coming for you, Jennifer. This one about Nutrien. Why has Nutrien stock been weak this year?
>>Nutrien stock is down about 20% year to date and that's predominantly because the prices of its two major products, nitrogen and potash fertilizer, have declined.
On the positive side, last year,prices spiked because Belarus was under sanctions and did not export as much and post Ukraine invasion, Russia also had trouble achieving itspotash exports. Now, these high prices have resulted in demand destruction and you saw farmers kind of through staying on applications and that's partly with driven prices back down. On the nitrogen side, natural gases are really important input into nitrogen productions so well in European natural gas prices spiked last year, that increased the marginal cost of nitrogen production and also knock some European production off-line, so that tightens that market but now this prices have settled down and we will see where they go, but that is been a big headwind in nitrogen. Now for Nutrien, the third issue has been retail.
Retail is normally a very steady division for them, but when farmers see prices falling, the kind of back off in terms of purchases because they want to see the price settle down.
So that hit the retail division last quarter as well they were working through higher cost inventory.
>> So some key challenges there. What could that look be going forward for Nutrien?
>> So things might be potentially turning around. In terms of farmers, their economic condition, former affordability has approved fertilizers with lower prices but also some of the crop prices are starting to pick up and that's because of drug concerns in the US.
On the positive side of the coin, we had Campo text reaching a settlement with China at $307 and that's viewed by some as trying to lure these buyers back into the market. From a farming perspective, you can reduce your potash applications for a year or two, but you can't do that sustainably in the longer run so that might be a motivation to come back to the market.
and lastly, Belarus and Russian exports are still expected to be down compared to preinvasion levels but might be higher than they were say last year. The offset potential is Nutrien looking to control the amount of production inputs into the market.
>> Interesting stuff. We are what you back your questions for Jennifer Nowski on commodity stocks in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can contact us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
[music] Checking in on the markets and we are having a look at TD's advanced dashboard, a platform designed for active traders available through TD Direct Investing. This, of course, is the heat map,a nice representation what's happening in the markets right now. We are screening to the TSX 60, we are taking a look at price and volume as he had been talking about commodity stocks on the show today, we are seeing a pullback in the price of American benchmark crude. It is clearly having an effect on some of our biggest energy names such as Suncor.
You can see it's down a little more than 2%. Also Cenovus Energy down about 2 1/2%.
Some downward pressure on the screen today but if you take a look at some of the material stocks it's a bit of a mixed bag right there. You got Barrick about flat but Kinross, the case symbol, and First Quantum, down about 2% as well. We've been talking about Nutrien. You can see it up there, the material space down about 1 1/4% today.
We've got to find some positive in the market so let's take a look at some of the green. Obviously Shopify in the upper right-hand corner. It's not a big gain but it is marina on the screen.
And then you can CCP rail and CN Rail both in positive territory in the industrial space although nothing too dramatic to the upside on the one.
You can find out more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now would Jennifer Nowski from TD Asset Management talking commodity is and we have a question just coming in in the past couple of moments. With limits on pipeline capacity weighing on Canadian energy firms, our global investor looking past?
>> Outlook for Canadian pipeline capacity is brighter than it's been in many years.
It more recently, WTI NW CS differentials have actually been fairly tight or normal.
More importantly, TMX is going to come online over the next few months and into year-end next year so that will create a lot more capacity coming out of the basin and that should keep those differentials within reach.
>> Let's take another question here.
how are the gold streamers looking compared to the gold miners? I always find this an interesting question.
If someone is interested in gold. But there's a difference here.
>> There certainly is. There are different models and risk profiles.
Streaming companies provide money upfront to help fund the building of a Mayan and then get a percentage of the production over the long run.
So they end up being exposed to changes in the gold price and production levels but not the operating costs of the mine.
And that's been a big difference over the past year is cost inflation has really bitten some of the senior gold producers.
Because of this lower risk profile, the royalty companies tend to trade at a premium compared to the producers. So which one you would prefer depends on your personal risk appetite as well as your view on gold prices.
So if the gold price is rising, that typically favours the producers because they have that extra operating leverage that they have wears in a declining gold price environment, the royalty companies would offer you that safety.
The only other thing I will mention on the producer side is like I said, inflation was a big headwind for them last year.
We just got through Q1 earnings and it feels like they got a better handle on what their costs are going to be this year and it remains to play out entirely but if inflation is broadly speaking in the economy coming down, that would be helpful for them on the cost side.
>> Okay, we have another question that is company specific. This one is about Newmont. How is Newmont looking after a deal for new crust? What happened there?
Refresh our memories.
>> Newmont is a large producer. They want to maintain production at steady levels for the next decade and they have a competitive cost base and strong balance sheet.
Now, Newmont did struggle last year without inflation I was talking about. Also some continued COVID restrictions in some parts of the world that created challenges for them on some of the products.
But specifically the deal to acquire new crust, it provides Newmont with a number of very large mines which they call tier 1 assets andwhen you look at the combined portfolio, they see opportunities to invest but also re-sequence production to get that solid production cadence.
there is also an opportunity to improve execution and cost.
They see about 500 million ofcosts from the deal. The risk to this is integration.
following year they did have some trouble integrating and fixing upa gold mine so that's a risk we will be watching for the next year.
>> An interesting breakdown of Newmont there.
Before we let you go in a circle back to the top of the conversation, the mixed bag we've seen in commodities is here.
There's a lot of factors at play.
What is an investor need to be mindful about as we are pre-much the halfway point of this year, in the summer now officially, what should investors be thinking about in terms of the mining space going forward?
>> the focus is on the demand side. People will be looking closely at what happens in China especially.
and then making sure that the producers are maintaining that discipline, so matching what they see as demand with their supply.
>> Jennifer, was a pleasure having you. I look forward to the next time.
> Thank you.
>> Jennifer Nowski, portly manager with TD Asset Management.
Make sure to always do your own research before you make any investment decisions. Really back tomorrow with an update on the markets, and highlights from the best interviews of the week.
On Monday show, Benj Gallander, the coeditor of Contra the Heard Investment Letter will be our guest taking your questions about contrarian investing. A reminder of course they don't have to wait until the show begins to get your questions in. You can get them in ahead of time. Just email moneytalklive@td.com. That's all the time we have to show today. Thanks for watching and we will see you tomorrow.
[music]
Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here. We're going to take you through what's moving the markets and answer your questions about investing.
coming up on today's show, will discuss the outlook for the commodity sector with Jennifer Nowski from TD Asset Management. And in today's WebBroker education segment,Nugwa Haruna is going to show us how you can research the natural resources space on WebBroker.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get all that, let's get you an update on the markets. We'll start here at home on Bay Street with the TSX Composite Index.
we are seeing some pressure to the downside, triple digit loss of 122 points will call that, little more than half a percent. We are seeing crude oil prices pull back today. It's been a choppy ride in the space and for a lot of the oil and gas names. We'll take a look at Suncor, we could have chosen any of them in the energy sector today, feeling some pressure from the price of crude being down again.
3817 for Suncor, you're done a little more than 2%.
The weakness of the energy space isn't just about oil and gas. It uranium plate Denison Mines today under some pressure. At about 57 per share, it's almost 5%.
has been put to the test this week. Of course, Jerome Powell has been in Washington testifying before lawmakers basically saying they see more hikes in the future to bring inflation under control. But right now the S&P 500 up a little more than 1/10 of a percent.
Let's check in on the tech heavy NASDAQ, curious to see what's happening there. Seems to be of a rally in the tech names after taking a bit of a downward path over the last several sessions. You're up almost 100 points on the NASDAQ composite index, or three quarters of a percent.
Boeing though, last time I checked in on the chair, was under pressure.
At 206 bucks and change, they are down 2 1/2%.
There fusillade provider is dealing with a plant strike. Seems to be weighing on the name a little bit today. And that's your market update.
Despite some concerns about tight supply, commodity prices have been a mixed bag.
At many metals, oil and gas prices flat or down year-to-date. Joining us now to discuss what's driving the trend and what it means for companies in the space is Jennifer Nowski, Portillo manager with TD Asset Management. Great to have you back on the show.
>> It's good to be here. Thank you.
>> Let's talk about what you have described as a mixed bag in the space right now.
One of the drivers?
What are we seeing?
>> It feels like much of the debate in the commodity market this year is centred more on the demand side of the equation, with investors evaluating the trajectory and pace of the recovery in China as well asslowing economic growth in the US and Europe.
Now looking at the supply side, yes, the market has had supply growth this year with the project coming online, however, this is being partially offset by shortfalls amongst existing production as well as continue producer disciplining many spaces. Now, commodities can be cyclical, volatile. It's uncertain how long anyone cycle will last. However, when you are-- when we see crosscurrents in the industry, it can be a very interesting time to discuss looking at commodities.
>> That's what we are doing today. You have supply in there, demand. Let's stick with the demand side, particularly the China part of the puzzle. At the beginning of the year, COVID restrictions were listen, people thought it was game on for China's economy, but for the global economy, thinking they were going to want to consume their commodities.
It hasn't gone that way. When do we expect to see the impact of China's recovery?
>> China is very important to the commodities market.
They can be anywhere from 50% of demand for some metals and there are about 16% of global oil demand. But more importantly, they have been a significant contributor to oil demand growth for many, many years now.
You saw that metals prices in particular responded earlier this year when China late last year announced it was moving away from their zero COVID policy, so the metals price started to anticipate some of this recovery. Fast forward to today, year-to-date in China, it is recovering but the pace is somewhat disappointing, particularly to what may be people had expected in the metals market.
If we look on the metal side, there are continued weaknesses in the property sector in China as it works through debt issues.
And on the oil side, although domestic travel has rebounded and recovered in China, international travel remains well below precode levels, and that's partly because of bottlenecks in getting visas as well as a limited number of flights out of the country.
So in light of this weakness in the recovery, the Chinese government is starting to take measures to stimulate the economy, including some rate cuts recently.
These are directionally positive for the commodity market, but I would caution that in the past, China has had very large stimulus measures that really boosted fixed asset investment and at this point it doesn't seem like this is the path they will take.
That's when it comes to their central bank policy, they are doing 10 basis points at a time, we are used to bigger things on the side of the world.
If commodity prices then remain weakened, what are we thinking about some of the energy and mining companies?
How did they fare in an environment like that?
>> Over the past five, 10 years, commodity prices had weakened and many producers had to evaluate their strategies and became focused on cutting costs, cutting CAPEX and strengthening the balance sheet. Those balance sheets got an extra boost the last couple of years when commodity prices were stronger. So as we sit now looking through estimates for 2023, the large Energy and mining companies look like they are going to have net debt of about 0.5 times which is very strong and provides them with some insulation heading into wherever commodity prices may go from here. The other thing to bear in mind is that some prices are still fairly good for producers.
So for example, with oil and coal at $70 and for a large Oil producer that can produce free cash flow yield in the high single digits, which is still fairly robust.
>> In an environment it like that where you are seeing free cash flow for some bigger producers or even at times when commodity prices are firmer, if we are worried about supply, why weren't they investing in that in the past? What are the dynamics in the part of the market?
>> So resource companies have really shifted their mindset. A decade ago it was all about growth, massive investment.
Now, they are very focused on being very disciplined with their investments and generating returns for shareholders. So during the past big domain like this 2012, 2014 period, it CAPEX was very elevated.
The commodity prices were stronger and companies were chasing growth.
And then commodity prices changed and they had to reevaluate all of this and CAPEX got cut significantly.
It came off the lows it reached but it the growth has been modest.
But it's still nowhere near the levels we saw about a decade ago. Why is this? Partly they are learning from past mistakes but it really comes back to again that focus on financial discipline. So the US shale layers, they tend to be shorter cycle, they have realized they run more efficiently at a lower growth rate so 0 to 5% production growth.
Some producers a plan to keep CAPEX within a specific range. And on the mining side, you have the added complication of some projects being very large. It takes a long time to permit. You can change these things quickly. And so when you have periods where we still had commodity price volatility, it makes them hesitant the kind of greenlight those really large projects.
Now the macro implication of all this is that supply growth would likely be limited and that supportive of the price.
> Let's talk about the path forward then for these companies. We are looking at some stronger balance sheets because one of the factors you've outlined, even though there might be a downturn in all of this is cyclical, you got some cash. What do they do with that money? Does a whole host of things you can do with cash in the balance sheet. What you think they will do?
>> I expect the financial discipline to remain in for them to pursue a balanced approach between all three options.
First maintaining that balanced balance sheet.
Second, they will continue to return cash via dividends and buybacks.
We just went through Q1 earnings about a month ago and for the energy companies, that was a key focus of investors, how much cash was coming back. And the third, M&A. So M&A has picked up a bit.
However it's not the big transformational M&A that marked the top of the last cycle.
This sort of M&A, by and large, is more contained. If you look at some of the gold minersor the US and peas, there's a big deal there and those were largely to shore up production and provide inventory for the long term.
On the large diversified minors, there were also some deals and that's usually to get exposure to some metals that they think have a strong long-run profile.
For example, PHP bought house minerals this year which is an Australian copper player.
>> A lot of talk about there is an interesting set. A great start to the show. We are going to get your questions about commodities for Jennifer Nowski and just moments time.
A reminder that you in touch with us at any time. Just email moneytalklive@td.
com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Investors weighing another central bank rate hike today, this time it is the Bank of England. Hiked its trendsetting rate by 50 basis points. It was a bigger move than the market was expecting. It also comes on the heels of another hot inflation report out of Britain.
Meantime, of course, Fed chair Jerome Powell has been in Washington telling lawmakers there that the fight against inflation is far from over, will likely need more rate hikes from the US central bank.
The parent company of Sobeys is raising its dividend payout to investors. Empire Co. is at with its latest quarterly report, profit and same-store sales up compared to the same period last year.
The grocer also saw improved margins on lower costs in its food retail segments.
The company is raising the dividend by some 10%. You can see the stock right now, Empire Co., a but just shy of 3%.
Shares of overstock.com are on the move today. The e-commerce company is going to buy the intellectual property and digital assets of bankrupt retailer bed bath and beyond. This deal is part of a bankruptcy run auction that will also see overstock.com by the chain's brand name. The deal does not include the bricks and mortar assets of Bed Bath & Beyond. You can see overstock right now up 16%.
A quick check in on the markets, we will start your own Bay Street with the TSX Composite Index.
Some downward pressure on crude prices and pressuring the energy names today. We are down hundred and 23 points, little more than half a percent. South of the border, the S&P 500 tried to get some momentum back but that is very modest green on the screen. You're up just a little more than a point or are just three checks.
We are back now in Jennifer Nowski, taking your questions about commodities. There are plenty coming in, let's start get through them.
This one about the situation in Ukraine and the energy crisis.
Has it resulted in any changes in the oil and gas industry?
> The Ukraine invasion and has resulted in some providers and investors evaluating the need to decarbonized versus the shorter-term role oil and gas can play in the economy and the need for energy security and affordability.
so we had to investor days from the major European players, BP and Shell. On the upstream side of things, both of them looked more closely at maintaining existing production levels, with BP backing away from some of its divestiture plans, it plans to remain production flat for the next couple of years. It Shell wants to keep upstream flat for a bit longer.
There is renewed focus on upstream production levels. A more shorter-term and more tangible, adequate nor actually boosted as production in order to help in Europe. However, a major committed to investing geez Wrist. The plans are becoming a bit more focused in areas newer to them, so EV charging, carbon capture.
Longer run, they are looking at options and hydrogen.
They are becoming more focused on the returns these are generating and this is resulting in some changes in their approach to the power market.
>> Interesting changes, obviously a big event there in Europe that has gone on longer than most people anticipated.
We have a viewer with the company specific question.
Can you get your guest to be one Exxon? Not sure. Exxon is very large, globally diversified energy company with both upstream production as well as downstream refining and chemicals exposure, so again, that provides diversification.
Exxon has a very high quality upstream portfolio where they've got good growth in areas like Guyana, the US… Also options in Brazil and LNG. So it really stands out about Exxon though as they are very committed to investing through the cycle and this, they got some challenges from investors on that the past couple of years when oil was at lower levels. However, they have shown that this is their preferred way to generate value over time.
They are also focused on technology.
So they are still working on ways to try to improve efficiency in the Permian and drive that further as well they are leveraging the technology and to some of these low carbon areas, again, like carbon capture.
Another distinction Exxon has is its dividend. It has a very long term history of paying a dividend and it maintained that dividend all through the COVID downturn.
In terms of risks for Exxon, commodity prices will vary. I would say that near term, for the refining side, margins have been quite strong in refining.
However, over the next couple of years globally, there has been an increase in refining capacity so that could be a potential risk. The second is the chemical margin.
So there has been oversupply in that industry.
>> Fascinating when you said investing to the cycle.
This is something we have become unaccustomed to when we look at energy spaces. There has been so much share buybacks and dividend payouts, Exxon, is it going in its own way?
>> they promised shareholders a balance between investing and they basically want to maintain a steady investment profile.
they want to take a long-term view on the oil price and invest accordingly. As you mentioned, very committed to the dividendand shareholder returns as well.
>> Interesting stuff. Another question here. It is company specific as well. Still in the oil and gas base.
What is your guest's view on Suncor?
>> So Suncor is a large player in Canada.
Most of their upstream production is Canadian oil sands but they also have some downstream refineries. Now Suncor did struggle for much of the past year in terms of a operational performance as well as they had some safety issues, unfortunately.
Things might be changing. This year they hired a new CEO, Rich Kruger, and he has decades of experience at Exxon and Imperial Oil, and he will be looking to try to improve that operational performance as well as cut costs. Now, there is some kind of M&A noise right now is Suncor.
So they recently had a bid to acquire the Canadian Fort Hills asset State from hotel as well as sermonic.
However, ConocoPhillips exercised its right of first refusal on surmount so Suncor is reassessing the deal for the Fort Hills steak with tow towel. And so Suncoris looking for ways to optimize its production profile and the use of a, keep its infrastructure well used in the oil sands over the long term.
However, Suncor is in good financial shape.
Got a good balance sheet.
At current oil prices, free cash flow yield is in the teens and it has that 5.4% dividend yield as well as a stock buyback so it's followed that relative shareholder returns as well.
>> Interesting stuff. As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for Jennifer Nowski on commodity stocks and just moments time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com.
Now let's go to our educational segment of the day.
We are discussing commodity stocks on the show today.
If you're looking to research the sector, WebBroker can help.
Joining us now is more is Nugwa Haruna, Senior client education instructor with TD Direct Investing.
Nugwa, always great to see you. Let's talk about how investors can track the performance of natural resource names in the sector using WebBroker.
>> Always a pleasure being here, Greg.
so for investors looking to keep track of the performance of a specific sector, and in this case the natural resource sector, they are able to do that in WebBroker and there are multiple ways to do that so I will show us one of those ways.
let's hop in to WebBroker to take a look. Once in WebBroker, I would click on research.
And once I click on research I jumped right into the sectors and start to take a look at this time you want us to you something different, which is the indices.
an index is essentially a mock or hypothetical portfolio that keeps track of a basket of securities.
So it tends to happen is sometimes a specific sector, they will be companies or stocks from that sector being tracked to give you a general idea of how that sector is performing. So once we are on this page for indices, we do have the major indices and that is our focus today. But our focus specifically is going to be the sole chart appear. I'm going to deselect one of the selections we have.
We are going to keep the TSX comp is it because that will be our base when we are talking about performance.
Now I'm going to click on sector indices. And focusing on the Canadian side, I will start to see some sector indices.
So I want to select to.
So we will start off by selecting the Canadian energy sector index and I'm going to highlight that. And you will notice that once I do that, it is now represented on this little chart.
It's represented by the purple line.
And now this is a comparison on how that is doing compared to the TSX Composite Index.
I will select one more, the global mining index.
And that is now represented by the orange line. Now for investors who want to take advantage of the fact that you have access to US markets, let's also throw on some US indices here. So I'm going to click on the portion that says US sector.
And once I do not, I will superimpose an index for the S and P energy sector in the US, through that on there, and I will add one more here, the US Dow Jones industry and in this instance, I'm going to add the oil and gas.
And when I do that, just coming back to this little chart we have here, you will see that the highest performer, at least in the last one year in terms of the sectors, will be the Dow Jones oil and gas index and a close second will be the S&P global mining index.
So investors then can start to dig a little deeper and see what companies are being held in these indices to research some more.
>> Knew, some interesting tools there for people who use WebBroker to do their research. What if they want to take action on what they are seeing? What would be the approach?
>> Right,so the question you might have might be, I want to buy that index. You are not able to buy an index but what you might be able to do is track a fund or purchase a fund that tracks that index and that's where things like index funds come into play or sector based exchange traded funds. Psilocybin to WebBroker and show investors with a can find specific kinds of ETFs that fit their needs. So in WebBroker, this time we are going to click on research. Under investments, we are going to go ETFs.
So once we are on this page, you have the option of either browsing the Canadian or US side. I'm going to toggle over to the US side is based on what we had seen, the Dow Jones oil and gas index was the highest performing, so let's say you decide to focus on the US side of things here.
This is the overview page.
But I want us to go words as categories. And once you come here and going to flip over to the US side as well.
You will notice that these are the different categories, there's a lot of them, but if you want to focus directly on commodities, you can do that.
I'm going to scroll down. I know where I'm going this time, so we are not going to have to look through every single thing on this list.
And once we scroll down, you will actually see a category for ETS called natural resources and there are 47 ETFs there. I click on this and I brought to the overview page for this.
it gives me a breakdown of what the ETFs is in the specific category, what they are looking to track. We can see things like energy, chemicals, minerals and forest products in the US. So investors can take a look at this, scroll down, start to go through those 47 ETFs, either make decisions based on performance so you can filter this table by performance, we can do that for year to date, to say, okay, give me the best performing ETF in this category year today.
And then once they make the decision, they can click on here and go ahead and make their purchase.
>> Great stuff as always, Nugwa. Thanks for that.
>> Always a pleasure being here. Thanks for having me.
>> Nugwa Haruna, Senior client education instructor with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now before you get back your questions on commodity stocks for Jennifer Nowski, a reminder of how we can contact us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back now in Jennifer Nowski, we are taking your questions about commodity stocks. Plenty coming in.
Let's take a look at this one.
If you want to get your comments on the outlook for base metals.
This is from Trevor who has been sending in questions lately. Thank you that, Trevor.
>> I will specifically focus oniron ore and copper. I would describe those markets as finely balanced.
I mean by that that inventories are normal and that provide some downside support.
But when you look at supply and demand, those are very closely matched and we don't really, it's unlikely to see large deficits or surpluses in either direction.
However, small changes in the supply demand can result in price movements.
So back to the demand side for iron ore and copper, you saw the price respond earlier this year when China was exiting that zero COVID policy but also more recently, both metal prices picked up when there were announcements and rumours about Chinese stimulus.
The supply side, there is some growth coming this year from new projects and copper and iron ore, partly new projects but also the minds living up to their full potential.
Again, this is partially hampered by supply shortfalls from existing production.
Now, the contrast occurs more in the medium and long term.
iron ore is in the global demand growth market and this year they might see more pressure from Chinese steel margins being weak in the property sector.
Copper, on the other hand, is stronger because it is used in elective vacation, renewable power installation, EV charging stations, that creates a stronger demand growth profile.
Once you look out past the projects we know that are under construction and coming online this year and next, the pipeline of construction work in progress looks a little thinner and so that's where you can see demand potentially outweighing supply.
>> When it comes to that copper story and elective vacation, you can't make electricity, as far as I know with my very simple understanding of science, without copper.
Does an investor have to be conscious of the fact that this is going to be a longer-term story and it's going to be may be a choppy row to get that space?
>> You're right.
Secular long-term trends, electrification is one, however there are still cycles. That's why you see all the concern about where the economy is headed whether in China or in the West.
>> This question is came in the last couple of minutes.
What is Jennifer's view on Capstone Copper?
> I think last year the year before, they did a merger with Mentos copper and that brought them some assets in Chile that have very efficient brownfield expansion opportunities that they are working through right now and also longer run potential synergies with capstone Santo Domingo project.
It is a growing company. Of course there are risks to growth. Projects can slip in terms of budget and schedule, so that's something to look out for in that name.
The other one is that it got a lot of exposure to Chile. Now, Chile is a mining country.
They are a large copper producer.
However, over the past year, the government there has made more discussions about trying to increase royalties or taxes on copper producers. So it's just this geopolitical risk that's in the background.
Now that was partially resolved last year.
They settled on their new royalty and tax regimes of that is known at this point but it's one of those geopolitical risks that we have to be monitoring for any copper or metals producer.
>> An interesting breakdown of the opportunities and risks therefore Capstone Copper. Next question.
We've been getting this question a lot lately. Now we have a guest you can talk about it.
Does your guest see any opportunities in lithium?
>> Yeah. So lithium, over the past two years, has been quite the roller coaster.
lithium, would stands out is the demand profile. When you think about lithium longer run, is used in batteries, EV growth, it's a huge driver.
estimates for the long-run demand are obviously, they can be hard to make. You have to make assumptions on battery chemistry, how fast EVs are adopted.
But when you look at them, you could have demand growing at about 20% plus annually which is very strong.
We talk about copper, we're talking about estimates of 2 to 3% demand growth per year. So this is a big a growing industry. The supply side, because of this, there are a lot of opportunities to the lithium companies and they have been investing very heavily and growing lithium supply and as discussed, when you're doing projects, you take on budget and schedule risk and some of the lithium players haven't been great at executing on this project so that the key risk on the supply side.
Now when we look at what has happened with the price of lithium, the price of lithium hydroxide basically doubled last year. Since has retrenched about 50% and now we are rebounding off that low. What happened in a nutshell is that late last year, the Chinese battery makers went through a de-stocking cycle, basically.
They pump I saw an imbalance between where they thought auto sales were going in China versus where they were going. However, now they have started restocking and on top of that, Chinese EV demand is looking fairly robust.
Now what we look for with lithium players, the lithium market is less mature seed and get some players that are a small Developers, production that are more diversified. We also want to see some geographic diversity and vertical integration. However, with the high lithium prices we had in the past year, that's kind of shored up the balance sheets for some of these players. And on top of that, looking aware lithium hydroxide sits today, some of the larger cap names, that sort of price is very good for them. They are covering their growth And they can generate free cash flow at that price.
so there are a lot of opportunities in lithium but you have to be careful about the valuation.
>> our viewers are probably quite pleased with that breakdown. Get that question a lot.
Thank you for that.
A lot of questions coming for you, Jennifer. This one about Nutrien. Why has Nutrien stock been weak this year?
>>Nutrien stock is down about 20% year to date and that's predominantly because the prices of its two major products, nitrogen and potash fertilizer, have declined.
On the positive side, last year,prices spiked because Belarus was under sanctions and did not export as much and post Ukraine invasion, Russia also had trouble achieving itspotash exports. Now, these high prices have resulted in demand destruction and you saw farmers kind of through staying on applications and that's partly with driven prices back down. On the nitrogen side, natural gases are really important input into nitrogen productions so well in European natural gas prices spiked last year, that increased the marginal cost of nitrogen production and also knock some European production off-line, so that tightens that market but now this prices have settled down and we will see where they go, but that is been a big headwind in nitrogen. Now for Nutrien, the third issue has been retail.
Retail is normally a very steady division for them, but when farmers see prices falling, the kind of back off in terms of purchases because they want to see the price settle down.
So that hit the retail division last quarter as well they were working through higher cost inventory.
>> So some key challenges there. What could that look be going forward for Nutrien?
>> So things might be potentially turning around. In terms of farmers, their economic condition, former affordability has approved fertilizers with lower prices but also some of the crop prices are starting to pick up and that's because of drug concerns in the US.
On the positive side of the coin, we had Campo text reaching a settlement with China at $307 and that's viewed by some as trying to lure these buyers back into the market. From a farming perspective, you can reduce your potash applications for a year or two, but you can't do that sustainably in the longer run so that might be a motivation to come back to the market.
and lastly, Belarus and Russian exports are still expected to be down compared to preinvasion levels but might be higher than they were say last year. The offset potential is Nutrien looking to control the amount of production inputs into the market.
>> Interesting stuff. We are what you back your questions for Jennifer Nowski on commodity stocks in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can contact us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
[music] Checking in on the markets and we are having a look at TD's advanced dashboard, a platform designed for active traders available through TD Direct Investing. This, of course, is the heat map,a nice representation what's happening in the markets right now. We are screening to the TSX 60, we are taking a look at price and volume as he had been talking about commodity stocks on the show today, we are seeing a pullback in the price of American benchmark crude. It is clearly having an effect on some of our biggest energy names such as Suncor.
You can see it's down a little more than 2%. Also Cenovus Energy down about 2 1/2%.
Some downward pressure on the screen today but if you take a look at some of the material stocks it's a bit of a mixed bag right there. You got Barrick about flat but Kinross, the case symbol, and First Quantum, down about 2% as well. We've been talking about Nutrien. You can see it up there, the material space down about 1 1/4% today.
We've got to find some positive in the market so let's take a look at some of the green. Obviously Shopify in the upper right-hand corner. It's not a big gain but it is marina on the screen.
And then you can CCP rail and CN Rail both in positive territory in the industrial space although nothing too dramatic to the upside on the one.
You can find out more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now would Jennifer Nowski from TD Asset Management talking commodity is and we have a question just coming in in the past couple of moments. With limits on pipeline capacity weighing on Canadian energy firms, our global investor looking past?
>> Outlook for Canadian pipeline capacity is brighter than it's been in many years.
It more recently, WTI NW CS differentials have actually been fairly tight or normal.
More importantly, TMX is going to come online over the next few months and into year-end next year so that will create a lot more capacity coming out of the basin and that should keep those differentials within reach.
>> Let's take another question here.
how are the gold streamers looking compared to the gold miners? I always find this an interesting question.
If someone is interested in gold. But there's a difference here.
>> There certainly is. There are different models and risk profiles.
Streaming companies provide money upfront to help fund the building of a Mayan and then get a percentage of the production over the long run.
So they end up being exposed to changes in the gold price and production levels but not the operating costs of the mine.
And that's been a big difference over the past year is cost inflation has really bitten some of the senior gold producers.
Because of this lower risk profile, the royalty companies tend to trade at a premium compared to the producers. So which one you would prefer depends on your personal risk appetite as well as your view on gold prices.
So if the gold price is rising, that typically favours the producers because they have that extra operating leverage that they have wears in a declining gold price environment, the royalty companies would offer you that safety.
The only other thing I will mention on the producer side is like I said, inflation was a big headwind for them last year.
We just got through Q1 earnings and it feels like they got a better handle on what their costs are going to be this year and it remains to play out entirely but if inflation is broadly speaking in the economy coming down, that would be helpful for them on the cost side.
>> Okay, we have another question that is company specific. This one is about Newmont. How is Newmont looking after a deal for new crust? What happened there?
Refresh our memories.
>> Newmont is a large producer. They want to maintain production at steady levels for the next decade and they have a competitive cost base and strong balance sheet.
Now, Newmont did struggle last year without inflation I was talking about. Also some continued COVID restrictions in some parts of the world that created challenges for them on some of the products.
But specifically the deal to acquire new crust, it provides Newmont with a number of very large mines which they call tier 1 assets andwhen you look at the combined portfolio, they see opportunities to invest but also re-sequence production to get that solid production cadence.
there is also an opportunity to improve execution and cost.
They see about 500 million ofcosts from the deal. The risk to this is integration.
following year they did have some trouble integrating and fixing upa gold mine so that's a risk we will be watching for the next year.
>> An interesting breakdown of Newmont there.
Before we let you go in a circle back to the top of the conversation, the mixed bag we've seen in commodities is here.
There's a lot of factors at play.
What is an investor need to be mindful about as we are pre-much the halfway point of this year, in the summer now officially, what should investors be thinking about in terms of the mining space going forward?
>> the focus is on the demand side. People will be looking closely at what happens in China especially.
and then making sure that the producers are maintaining that discipline, so matching what they see as demand with their supply.
>> Jennifer, was a pleasure having you. I look forward to the next time.
> Thank you.
>> Jennifer Nowski, portly manager with TD Asset Management.
Make sure to always do your own research before you make any investment decisions. Really back tomorrow with an update on the markets, and highlights from the best interviews of the week.
On Monday show, Benj Gallander, the coeditor of Contra the Heard Investment Letter will be our guest taking your questions about contrarian investing. A reminder of course they don't have to wait until the show begins to get your questions in. You can get them in ahead of time. Just email moneytalklive@td.com. That's all the time we have to show today. Thanks for watching and we will see you tomorrow.
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