MINERAL REVIEW AND FORECAST: THE CANADIAN ECONOMY IN 1991

The Canadian economy entered 1991 in a recession that was already nine months in duration. In general, the economy was characterized by high unemployment, low consumer and business confidence, weak consumer spending, declining interest rates, a strong Canadian dollar, low corporate profits, weak levels of business investment and record levels of business and personal bankruptcies. For the year overall, real GDP growth was estimated to have declined by about 1.0%. At year-end, the economy was showing little, if any, sign of recovery.

The unemployment rate averaged 10.3%, the highest in six years. About 1.4 million people were out of work in 1991, compared with 1.1 million in 1990. Housing starts were down 14%, their lowest level since 1984.

Business investment in plant and equipment continued to be depressed, reflecting extremely low corporate profit levels. Capacity utilization rates in manufacturing averaged 71% over the first nine months of the year, below the 80% average of the past 10 years.

The mineral industry — mining and concentrating, smelting and refining, minerals and metals-based semi-fabricating and fabricating industries — accounted for approximately 4.5% of Canada’s GDP (including coal and uranium, but excluding oil and natural gas). Mining accounted for about one-third of mineral industry GDP.

About 3% of total national employment and over 17% of total domestic exports were directly attributable to the mineral industry. Mineral industry capital investment and repairs in 1991 represented about 6% of the economy’s total capital and repair spending. That same percentage figure represented the industry’s portion of total R&D expenditures by Canadian industries in 1991.

The value of Canadian mineral production (including fuels) totalled $34.8 billion in 1991, compared with $40.8 billion in 1990, a 14.6% decrease precipitated mainly by lower prices but also from reduced output volumes. Declines in the value of production were incurred in all commodity groups — metals, nonmetals, structural materials and fuels. Significant decreases in the average prices of crude petroleum and metallic minerals accounted for most of the decrease in the overall value. The nonfuel sector saw the total value of production fall by 15.9% to $15.0 billion from $17.8 billion in 1990.

Gold production in Canada was estimated at 5.69 million oz (176.7 tonnes) in 1991, an increase of 5.6% over 1990 production of 5.37 million oz (167.4 t). However, gold prices drifted lower in 1991, averaging US$362/oz compared with $384, thus causing a 2.2% decrease in value. With a total value of $2.4 billion, gold took over as the leading metal in 1991 in terms of the value of production.

Copper production in Canada increased slightly by 0.3% to 774,000 tonnes in 1991 from 771,000 tonnes in 1990. The value of production fell by 13.5% to $2.1 billion, reflecting a lower average price of US$1.06/lb. on the London Metal Exchange (LME) in 1991, compared with $1.21 in 1990. Labor and production problems at several locations in the world had the effect of keeping copper prices above $1.00.

Canada’s nickel production decreased by 3.0% to 189,000 tonnes in 1991 from 195,000 tonnes in 1990, while the value of production declined by 9.8% to $1.8 billion. In response to weak nickel prices, production cutbacks at their Sudbury operations in the fourth quarter were announced by both major producers. In 1991, nickel prices averaged US$3.70/lb., a decrease from the 1990 average of $4.03.

Zinc production in Canada was estimated at 1.1 million tonnes in 1991, a decrease of 8.4% from the 1990 level of 1.2 million tonnes, a result of labor disputes and mine closures. The combination of lower volumes and much lower prices caused the value of production to fall by 40.6% to $1.4 billion in 1991. Zinc prices averaged US51 cents/lb. on the LME in 1991, compared with the 1990 average of US69 cents. This fall in prices was the result of growing surpluses in the concentrate market, fewer production disruptions, the downturn in world economies and high levels of stocks of zinc metal.

After three years of decline, lead production rose to 240,000 tonnes, an increase of 2.7% over the 1990 level of 233,000 tonnes. This increase was due to the resolution of a number of production disruptions ranging from labor disputes to technical problems. However, lower prices precipitated a 27.0% decline in the value of production to $204 million in 1991. Lead prices averaged US 25 cents/lb., considerably lower than the 1990 average of 37 cents when tight markets prevailed.

Production of silver in Canada was estimated at 39.9 million oz in 1991, a decrease of 10.2% from the 1990 level of 44.4 million oz. This was the result of mine closures and declining production at other mines. A combination of reduced volumes and lower prices caused the value of production to fall by 25.8% to $185 million. The price of silver, which has been declining over the past decade, averaged US$4.06/oz compared to $4.83 in 1990.

Iron ore production in Canada rose by 0.8% to 36.0 million tonnes in 1991 from 35.7 million tonnes in 1990. The value of iron ore output increased by 3.9% to $1.3 billion. Of the leading metallic minerals, iron ore was the only commodity to record an increase in the value of production.

Potash production was estimated at 7.0 million tonnes in 1991, a decrease of 4.5% from 7.3 million tonnes in 1990. Although the value of output decreased by 4.8% to $919 million, potash was Canada’s leading nonmetallic mineral in terms of value of production. Due to world overcapacity, the Canadian industry operated at about 70% of effective capacity.

The Canadian economy entered the year 1992 on a very sluggish note, with no clear indication that the recession was over. Economists are predicting a gradual strengthening of the economy, although there is considerable uncertainty regarding the pace and intensity of the recovery. With the continued slowdown of the world’s economies, commodity prices are expected to experience downward pressure. Despite the current economic weakness, it is anticipated that the mineral industry will continue to make a major contribution to Canada’s economy, although it faces ever-broadening challenges, such as environmental protection and international competitiveness.

CANADA, PRODUCTION OF LEADING MINERALS, 1990 AND 1991

VOLUME VALUE

1990 1991P % change 1990 1991p % change

(000 tonnes except where noted) 1991/1990 ($millions) 1991/1990

METAL MINES

Gold (kg) 167,372.5 176,720.1 5.6 2,407.7 2,355.3 -2.2

Copper 771.4 773.6 0.3 2,428.9 2,101.2 -13.5

Nickel 195.0 189.2 -3.0 2,027.9 1,828.2 -9.8

Zinc 1,179.4 1,079.9 -8.4 2,272.6 1,351.0 -40.6

Iron Ore 35,670.0 35,961.1 0.8 1,258.8 1,307.9 3.9

Uranium (tU)

9,720.2 7,813.3 -19.6 888.0 472.1 -46.8

Lead 233.4 239.6 2.7 279.3 203.9 -27.0

Silver (t) 1,381.3 1,239.9 -10.2 249.7 185.3 -25.8

Platinum group (kg)

11,123.4 10,955.4 -1.5 189.4 141.8 -25.1

Molybdenum (t)

12,188.5 11,292.0 -7.4 84.7 70.4 -16.9

Non-metal mines

Potash (K20)

7,344.6 7,012.0 -4.5 964.9 919.0 -4.8

Asbestos 685.6 670.4 -2.2 272.1 274.5 0.9

Salt 11,191.4 11,585.3 3.5 240.9 258.6 7.3

Sulphur, elemental

5,822.1 6,029.0 3.6 368.9 244.1 -33.8

Peat 899.8 877.0 -2.5 112.0 111.6 -0.3

Sulphur, in smelter gas

789.8 726.4 -8.0 81.2 76.6 -5.7

Structural materials

Cement 11,745.2 9,395.9 -20.0 991.4 816.8 -17.6

Sand and gravel

244,315.8 200,497.1 -17.9 817.3 631.4 -22.7

Stone 111,351.8 85,784.8 -23.0 662.9 512.8 -22.6

Lime 2,340.7 2,335.8 -0.2 188.3 186.3 -1.1

Clay products n/a n/a 136.0 139.4 2.5

Fuels

Petroleum, crude (000m3)

90,278.6 89,702.6 -0.6 13,103.4 10,629.5 -18.9

Natural gas (million m3)

98,770.8 103,393.4 4.7 5,692.0 5,191.0 -8.8

Natural gas by-products (000m3)

23,862.7 24,705.1 3.5 2,370.8 2,125.5 -10.3

Coal 68,332.0 71,000.0 3.9 1,823.7 1,905.9 4.5

p preliminary; n/a not applicable. Note: Figures have been rounded