CEOs and analysts say plunging oil prices will significantly affect business at a wide range of B.C. companies, although determining exactly who will benefit and who will be hurt is complicated.
Even the widespread belief that oil and gasoline companies, such as Vancouver-based Chevron Canada Ltd., will be hurt is not necessarily true, according to Chevron spokesman Adrien Byrne.
Byrne declined to comment on the Alberta-based side of his company – an operation that will likely be hurt because it explores for and produces oil. But he said the company’s B.C.-based refining and retail division benefits when oil prices fall.
“Crude oil is the major input cost in our refining process,” he said.
He said even though a Canadian Automobile Association (CAA) study determined that the average retail gas price in Canada on December 1 was at a four-year low of $1.11 per litre, the price for crude oil has fallen faster. So in the short term, Chevron is reaping a bigger profit on its gasoline sales, Byrne said.
One clear major and widespread impact on B.C. companies of a low oil price is that the Canadian dollar, which is widely seen as a petro-currency, falls when oil prices are low. It has recently been hitting five-year lows.
Conventional wisdom is that this helps Canadian manufacturers because most sell their products to U.S. consumers or to third parties that resell to Americans, said Sheppards Building Materials president Ben Hume, a former director of Canadian Manufacturers and Exporters.
“The low dollar doesn’t help my business, though,” Hume said. “The building products part of my business pretty much sells in Canada only and a big chunk of our supply chain is in U.S. dollars. Aluminum is priced in U.S. dollars, and Canadian consumers don’t want to pay any more for it.”
Retailers also have mixed assessments of how much of a benefit a low oil price will be, even though they tend to agree that low gasoline prices are good news because they put more money in consumers’ pockets.
Vancouver-based yogawear seller Lululemon Athletica Inc. (Nasdaq:LULU), for example, reports its earnings in U.S. dollars. So, it will take a currency hit on sales at its Canadian stores, which make up about one quarter of the company’s 225-store retail empire in North America.
Choices Market CEO Ishkandar Ahmed added, “When the price of fuel comes down and costs go down, we could be forced to lower our prices because everybody has to be competitive.”
Ahmed’s suppliers will likely enjoy lower freight costs to ship him vegetables from California but the cost may be the same when currency exchange is factored in.
It may also take consumers a while to change spending habits, said DIG360 Consulting retail analyst David Gray. He added that e-commerce ventures, which ship via FedEx or UPS, will have a tougher time realizing cost savings on shipments than will retailers who use their own gasoline-powered vehicles.
Among the clear winners from low oil prices are lumber and sawmill companies, said Wood Resources International LLC president Hakan Ekstrom.
Companies such as Canfor Corp. (TSX:CFP) and West Fraser Timber Co. Ltd. (TSX:WFT) will not only be able to reduce freight costs, but also could see a rise in demand from U.S. home builders and home renovators.
“A lower cost to bring lumber to market and an improved consumer market – that’s good news for sawmills in B.C.,” he said. •
