Canada Rail Strike Triggers Emergency Propane Shortage in Quebec

(Bloomberg) --

Quebec is facing an emergency shortage of propane and shipments of oil, grain and metal are grinding to a halt as the impact of a rail strike in Canada threatened to take a multibillion-dollar chunk out of the nation’s economy.

About 3,200 conductors and yard operators at Canadian National Railway Co. walked off the job Tuesday, snarling shipments from one of the world’s largest exporters of raw materials. The Quebec premier said its supply of propane is set to run out in four days, and the movement of freight destined for the U.S. and global markets stalled on Canada’s largest railway.

Should the disruption last until Nov. 30 it could crimp gross domestic product by as much as C$2.2 billion ($1.7 billion), according to Toronto-Dominion Bank economists Brian DePratto and Derek Burleton. If it extends until Dec. 5, when lawmakers resume work in Ottawa, it could put a C$3.1 billion hole in the economy. That’s equivalent to a nearly one-quarter percentage point loss in the fourth quarter, the economists estimate.

“The longer this goes on, the bigger the knock-on effects are likely to be, particularly for sectors like agriculture and chemicals,” DePratto said by email Thursday. “So the Dec. 5 impact analysis may be somewhat conservative.”

Propane Shortage

The Teamsters Canada Rail Conference union has been without a contract since July and walked out over issues including working conditions and drug benefits. Prime Minister Justin Trudeau, who was re-elected to a second term but failed to win any districts in two energy and agriculture rich western provinces, is facing calls to legislate an end to the strike. His transport minister said Wednesday the government prefers a negotiated settlement.

Propane in Quebec is running low, threatening the heating systems of hospitals and elderly residences across the province, Premier Francois Legault said. The majority of Quebec’s propane supply is transported by rail from Sarnia, Ont.

“The strike cannot last,” he told journalists in Quebec City, according to a report by the Canadian Broadcasting Corp., describing it as emergency situation.

Farmers in Ontario and Quebec meanwhile are being urged to limit drying of corn and soybeans as heating for residents and livestock is prioritized.

Crude Shipments

The labor action has almost halted shipments of crude oil at some rail terminals in Alberta at a time when pipelines are filled to capacity and trains are essential to maintaining exports of Canada’s most important commodity. The Tank Tiger, a terminal storage clearinghouse, received an inquiry to store about 30 rail tank cars for 30 days in the U.S. Pacific Northwest, after the cars couldn’t deliver crude to a terminal due to the labor action, Ernie Barsamian, chief executive officer, said Thursday.

Miners are also feeling the impact of the labor action. If the strike continues, Hudbay Minerals Inc. could see an inventory buildup of zinc/copper concentrate and lagging sales in the fourth quarter, a Credit Suisse analyst said.

Metals Fleet

In the U.S., Union Pacific Corp., the largest freight rail provider in the Western region, said it stopped accepting shipments from CN Rail. That’s poised to impact the flow of steel, copper, aluminum and zinc between the two countries. CN Rail serves all nine aluminum smelters in Canada, which combined are the world’s third-largest producers of primary aluminum after China and Russia, according to CN Rail’s annual report. The company also said it has a network of 16 strategically located metals distribution centers and the largest active fleet of railcars for metals in Canada.

Less than a third of CN employees can be replaced by qualified managers and others, Bloomberg Intelligence Analyst Lee Klaskow said in a report Thursday. “CN risks losing time-sensitive intermodal freight. Most of the carload volume will be delayed until the strike ends.”

While CN Rail is Canada’s largest railway, Canadian Pacific Railway Ltd. also ships goods across the country, giving companies alternative options.

Growth Slowing

Suncor Energy Inc., the biggest oil sands producer, has “contingency plans in place to deal with this situation,” Sneh Seetal, spokeswoman, said in an email late Wednesday. “As a reminder we have a vast logistic network which we are able to tap into during this time.”

Economic growth is already decelerating in Canada amid global trade tensions. The consensus estimate is for gross domestic product to grow 1.3% in the fourth quarter, according to a Bloomberg survey before the strike began.

Canadian heavy crude prices weakened Thursday with Western Canadian Select’s discount to West Texas Intermediate futures widening 15 cents to $18.90 a barrel, data compiled by Bloomberg show.

--With assistance from Ashley Robinson.

To contact the reporters on this story: Shelly Hagan in Ottawa at shagan9@bloomberg.net;Robert Tuttle in Calgary at rtuttle@bloomberg.net

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Jacqueline Thorpe, Steven Frank

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