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11 Top Blue Chip Canadian Stocks to Buy in October 2021

When investors think of blue chip Canadian stocks, they often think of some of the best Canadian dividend stocks. However, this isn’t necessarily the case.What are Canadian blue chip stocks?Our definition of a blue chip stock is simply one that has a…

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When investors think of blue chip Canadian stocks, they often think of some of the best Canadian dividend stocks. However, this isn't necessarily the case.

What are Canadian blue chip stocks?

Our definition of a blue chip stock is simply one that has a large market capitalization and is a top company in its industry.

Typically I look for high quality stocks that are within the top three in terms of performance in the sector, but industries like Canadian banking can have a multitude of stocks I consider blue chip even if they aren't a front runner.

Blue chip stocks are often the backbone of an investors portfolio, and are held for the long term. Investors, especially those just learning how to buy stocks in Canada, should make high quality blue-chip stocks their primary focus.

They provide long term stability and usually (but not always like I stated above) an excellent dividend.

Why is that?

Well, a "blue-chip" stock is often well established and has been financially sound for decades. This differs from growth stocks, as an investment in them is often banking on the growth potential of the company, not its previous results and can have extensive swings in price over the long term.

An interesting piece of information before we move on to the best blue chips stocks in Canada though.

Did you know that the term blue chip, when it comes to the stock market, is derived from the game of poker?

Typically, blue chips held the highest value, and as such were the most important to hold in your stack.

With all that said, here is a list of high quality Canadian blue chip stocks you need to be looking at in 2021.

The list is dominated by energy, financial and railroad companies, but this is to be expected as they take up a large majority of the TSX.

What are the 11 best Canadian blue chip stocks?

11. Barrick Gold (TSE:ABX)

After a bear market that lasted the better part of the last decade, gold has finally regained its shine.

During the last bull market, gold companies were irresponsible and scooped up assets at high prices. This led to record-high debt loads, and once the price of gold crashed, they were ill prepared.

This was a factor in a number of defaults, write-downs, and dividend cuts.

Fast forward to today, gold producers are much better prepared. They are leaner and are taking a much more disciplined approach to capital investments. This bodes well for the long-term future of gold stocks regardless of the volatile price of gold.

Barrick (TSX:ABX) is one of the biggest gold stocks in the world, and it has emerged stronger than ever. It is one of the most diversified stocks in the industry and generates considerable cash flow.

Based out of Toronto, Barrick is one of the world's largest producers, with 2020 production coming in at nearly 4.8 million ounces of gold, and 460 million pounds of copper. The company also has nearly 68 million ounces of gold reserves and is well positioned to grow its production profile over the next decade.

Furthermore, it has been laser-focused on reducing its debt burden recently – down by more than 50% over the past handful of years.

The company is making decisions based on $1,200 gold prices, which should insure strong cash flow generation while providing a large margin of safety. It has also returned to dividend growth, a strong sign of confidence by management that the worst is behind them.

All in sustaining costs hover around the $1,030 an ounce level and it is among the best valued in the industry.

There are plenty of other gold companies on the TSX Index, but when we're looking at blue chip options here in Canada, none of them compare to Barrick in terms of size and stability.

However, the company has significantly underperformed the TSX Index over the last decade, and as a result it's number eleven on this list.

10 year returns of ABX vs the TSX:

TSE:ABX Vs TSX Returns

10. Brookfield Asset Management (TSE:BAM.A)

Brookfield

Brookfield Asset Management (TSE:BAM-A) is one of the largest asset management companies in the country. It's business structure is quite complex, and many beginner investors don't know where to start.

This is because Brookfield has a multitude of subsidiaries, ones that investors can purchase on their own. In fact, we've often called BAM.A the "ETF" of Brookfield companies. 

This is because Brookfield Asset Management contains exposure to the real estate, infrastructure, private equity and even renewable energy sectors.

But, investors can instead purchase a subsidiary of the company like Brookfield Renewable Partners (BEP.UN) to get exposure to its renewable energy assets or Brookfield Infrastructure Partners (BIP.UN) to gain exposure to its utility, transport and energy assets, among others.

So, why buy Brookfield Asset Management instead? It yields less, and is growing slower than a company like Brookfield Renewable Partners? Well, the simple answer to this is you want exposure to all of the company's assets, and instead of seeking out a higher yield, you instead want overall returns.

$10,000 invested into Brookfield Asset Management a decade ago is now worth $67,000. Although Brookfield Property Partner is no longer traded, this return would have outperformed both BPY and BIP. Brookfield Renewable Partners has outperformed BAM.A, but this is only due to a recent surge in renewable energy popularity.

The company's assets are primarily located in the United States and Canada, but it does have exposure in both Brazil and Australia as well. With a market cap in excess of $110B, this is one of the largest companies in the country and is certainly worth of  its blue-chip title.

Brookfield is a Canadian staple, and has consistently rewarded shareholders with market beating growth. This is due to outstanding management and operating performance.

Although many investors will not be seeking out BAM for its dividend as it yields less than 1%, it does have a 9 year dividend growth streak, making it a Canadian Dividend Aristocrat and it has grown that dividend at a near double digit pace (9.85%) over the last half decade.

10 year return of BAM.A vs the TSX:

TSE:BAM returns vs TSX 10 year

9. TC Energy (TSX:TRP)

TC Energy

The oil & gas industry was decimated in 2020. However, we're slowly seeing it recover and Canadian investors are looking for blue-chip stocks to gain exposure.

And in our opinion, you may be wise to avoid producers and stick to pipelines. Why?

Whether it be TC Energy (TSX:TRP), Pembina Pipeline, or Enbridge (TSX:ENB), these are companies that transport various commodities. They are less susceptible to damage due to fluctuations in the price of oil.

One of the best in the industry is TC Energy (formerly TransCanada). The company was the best performing pipeline by quite a wide distance in 2020 up until the end of the year, when the rumored and eventual confirmation of the cancellation of the Keystone XL.

However, the company has plenty of growth projects, and we don't view the cancellation as an issue at all.

In terms of the pandemic, TC Energy didn't face any significant impacts. In fact, the company stated:

“despite the challenges brought about by COVID-19, our assets have been largely unimpacted”

It went on to say that its outlook remained unchanged as 95% of EBITDA is underpinned by regulated assets and/or long-term contracts. This was a very strong indicator of the company's financial health.

The company has critical infrastructure across North America and it expects to spend $37 billion on growth projects through 2023. The majority of which will be spent on natural gas pipelines.

Further highlighting its resilience, the company re-iterated dividend growth guidance of 8-10% annually through 2021. Post 2021, it expects the dividend to grow at a compound annual growth rate of 6% at the mid-range.

If you are looking for a best-in-class energy company, TC Energy certainly fits the bill. It is trading at cheap valuations, the company’s juicy dividend yield is well covered, and it has a robust pipeline of growth projects.

This isn't a blue-chip Canadian stock that is going to blow you away with outstanding returns. But, it's going to provide a consistent growing passive income stream.

10 year returns of TRP vs the TSX:

TSE:TRP Vs TSX Returns

8. Canadian Pacific Railroad (TSX:CP)

CP Rail

Railroads are the bellwether for economic activity, and Canadian Pacific Railway (TSX:CP) has made a dramatic move forward.

Pre-2012, the company was having significant operational issues which led to many tough decisions. The turnaround has been nothing short of astounding.

Over the past five years, it has outperformed its larger peer (CN Rail) and it transformed itself from the lowest-margin railroad to the highest of all publicly listed North American railroads.

With its operational issues in the rear-view mirror, the railroad has returned to dividend growth.

In July 2020, the company extended its dividend-growth streak to five years when it raised the dividend by 15%. It was a notable raise as it was declared at a time in which many other companies either cut or suspended dividends as a result of the pandemic.

Over the course of the streak, it has consistently raised the dividend by double-digits.

With July’s raise, CP Rail once again earned Canadian Dividend Aristocrat status in 2021. This is important as it will be added to funds that track the Aristocrat Index and it will regain credibility among dividend growth investors.

Over the next handful of years, the expectation is for earnings growth in the high single digits. This growth actually has a chance to accelerate, but the company is currently in a feud with Canadian National Railway over a purchase of Kansas City Southern.

The recent events have actually led to CP Rail being a frontrunner over CN Rail. But, this is a situation that is still likely going to go on for quite some time.

The deal, Had Canadian National not stepped in to interrupt it, would have been comprised of share issues and debt, and would have created a railway that spans from Canada all the way down to Mexico.

There isn’t much not to like about CP Rail. It forms a duopoly with CN Rail, and rail is the primary means of transporting goods across the country. It is also proving to be a strong defensive stock in light of the current pandemic.

It recently underwent a share split, and is also more attractive to retail investors who couldn't afford the lofty $400+ price tag it used to trade at.

10 year returns of CP vs the TSX:

TSE:CP Returns Vs TSX

7. Canadian Apartment Properties REIT (TSX:CAR.UN)

canadian apartment properties reit

You might be thinking, how can a REIT make a list of blue Chip Canadian stocks in light of the current pandemic? Let us explain.

Although the sector as a whole is under pressure, there are certain industries that are more stable than others – that includes those that operate multi-unit residential properties.

Although there are better performing names in this area, Canadian Apartment Properties (CAP) REIT (TSX:CAR.UN) provides excellent value here. It has a suite of affordable rent portfolios that is proving to be quite resilient.

CAP REIT is also in strong financial shape. It has a debt-to-gross book value of only 36.4% (a rate below 50% is considered strong), one of the lowest in the industry.

Furthermore, the company’s 2.50% dividend yield is well covered, accounting for only 73% of adjusted funds from operations. Once again, this is in the top tier of TSX-listed REITs.

The company is currently trading at a 17% discount to cash flow value, and a 14% discount to net asset value. In June of 2020, the company was added to the S&P/TSX 60 Composite Index which tracks the largest companies by market cap on the TSX Index. In fact, it is the only REIT among the Index constituents.

Although it does carry greater risk than most on this list, the risk-to-reward proposition is attractive. Now is the perfect time to start accumulating Canada’s largest residential REIT.

10 year returns of CAR.UN vs the TSX:

CAR-UN Vs TSX

6. BCE Inc (TSX:BCE)

BCE dividend

BCE Inc (TSX:BCE) is one of the largest telecom companies in the country and is often grouped together with the "Big 3", being Telus, Rogers, and Bell.

In terms of Blue Chip stocks, you can't really go wrong with any of the three, but what sets BCE apart is its ability to generate new subscribers in a mature market, and its sheer size.

The company's strength is product innovation, and providing the fastest network possible to Canadians. Its success in this department is reflected with a customer base that exceeds 9 million subscribers. 

The company states that 99% of Canadians have the ability to gain access to BCE's services, which is an industry leader in terms of coverage. This is exactly why it deserves the title of blue-chip stock over its counterparts Rogers and Telus.

Don't get us wrong though, all 3 are outstanding companies. Why?

The Canadian telecom industry is somewhat of a regulated monopoly. The three big players dominate the industry and the regulations make this unlikely to change anytime soon.

Canadian's pay some of the highest phone and television bills out of all the developed countries, and strict regulations make it nearly impossible for new players to try and penetrate the market.

The one company that was having some success at breaking through is Shaw Communications (TSX:SJR.B), but they were recently acquired (pending approval) by Rogers.

BCE is one of the best income stocks in the country, with a dividend yield north of 5.5% and an 12-year dividend growth streak. Although it may seem like a short streak, the streak was interrupted by an impending purchase by the Ontario Teacher’s plan that ultimately fell through.

With a market capitalization of more than $54B, the company is one of the largest in the country and is a Blue Chip stock that has provided consistency and reliability for over a decade.

Although it may not provide the best growth out of the Big 3, it has the widest reach across the country and commands the title of blue chip Canadian stock when it comes to telecommunications.

10 year returns of BCE vs the TSX:

TSE:BCE Stock Vs TSX Index

5. Metro (TSX:MRU)

metro dividend

A quick look over the sectors in 2021 and you will find only one that has consistently been among the top performers – consumer staples.

Not surprisingly, as the economy shut down, we still needed our basic necessities and this sector remained strong, particularly among grocery stocks.

One of the country’s best is Metro (TSX:MRU).

A quick look at its long term chart will tell you everything you need to know. Metro is a pillar of consistency. Nothing flashy here, just consistent and reliable growth.

The company’s low yield may be a turn-off for some, but it is one of the best dividend growth stocks in the country.

Metro’s 26-year dividend growth streak is tied for the 7th-longest streak in the country and it is one of the few in the leading 10 to have consistently raised by double-digits over the past three, five, and ten-year periods.

Even in a post-pandemic and post-shutdown environment, we feel that consumer activity and purchasing habits have changed forever.

It's likely that Metro could see less foot traffic through it's doors, but a higher amount of volume per purchase as consumers have learned over the pandemic to shop more efficiently.

Another habit? E-commerce. And this is a space that Metro is growing in rapidly. In fact, the company's online sales saw a 240% increase year over year.

This growth is likely to slow as the pandemic subsides, but there is no question that consumer habits have changed and some will make a permanent shift to e-commerce ordering due to convenience. As a result, we'd still expect significant growth in the company's online sales moving forward.

And finally, in periods of rising inflation, a company like Metro has the chance to outperform. Consumer defensive stocks like Metro tend to outperform pure-growth plays in rising rate & inflationary environments.

10 year returns of MRU vs the TSX:

TSE:MRU Vs TSX Index

4. Constellation Software (TSX:CSU)

Constellation Software

Although it is starting to make headway, the technology sector is still under-represented on the TSX Index.

Unlike south of the border where tech makes up almost a quarter of the markets, the sector still accounts for only a single digit weighting on the TSX Index.

This is up notably from the 3% it accounted for a couple of years ago, yet there is arguably only one company that could qualify to be a true blue chip Canadian stock.

And that is Constellation Software (TSX:CSU). Constellation is one of the best-managed companies on the TSX Index.

Over the past ten years, its stock price has soared by over 3600% and it has one of the best track records in the industry. It pays a modest dividend, but what it lacks in income, it more than makes up for in capital appreciation.

A $10,000 investment in the company 10-years ago would be worth over $350,000 at the time of writing – and this is without commanding some of the crazy valuations of today’s high-growth tech stocks.

Constellation is simply put, the best consolidator in the industry. It has a knack for acquiring companies and seamlessly bringing them into the fold. It is also important to recognize that tech is becoming a defensive play in this new environment.

The pandemic has accelerated the shift to technology and Constellation has been one of the best performing tech stocks over the last year.

It is however, a company that requires full trust in management. It does not hold quarterly conference calls, and only provides an annual letter to shareholders. You are putting your trust in management, and thus far, it has proven to be a winning proposition.

It also has a high share price, frequently trading in the $1900+ range. This does make it extremely hard for beginner investors with a small portfolio to purchase the stock. If you only have $5,000 or $10,000 to start out with, it presents somewhat of a concentration risk.

Fractional shares, or a potential share split, could make Constellation more attractive to those just starting out.

10 year returns of CSU vs the TSX:

TSE:CSU 10 Year Returns vs TSX

3. Canadian National Railway (TSX:CNR)

CN Rail dividend

Canadian National Railway (TSX:CNR) is the largest railway company in Canada, and as such has become a no-brainer when referencing the top blue-chip stocks here in Canada.

With over 33,000 kilometers of track, CN Rail is engaged in the transportation of forest, grain, coal, sulfur, fertilizer, automotive parts, and more.

CN Rail is a company that is growing the dividend at an impressive pace. It has a dividend growth streak of 25 years and a five-year dividend growth rate of 12.97%, the stock's consistent rise in price has resulted in a low yield.

Don’t fret. The company may lack in yield, but it makes up for that in capital appreciation.

Over the past decade, it has returned more than 386% to investors. This type of performance out of a large cap, blue chip company is quite impressive.

Simply put, CP Rail and CN Rail are some of the best railways in North America, which is why they're both on this list. In fact, they're the only sector that features two companies on this list, that is how strong they are.

Prior to the Kansas City Southern fiasco, CN Rail had been performing exceptionally over the last year. And, now that things seem to be settling in terms of the deal, it's starting to get back to its outstanding performance despite a short term slump.

The KC Southern situation will likely take a year at minimum to resolve, and the feud between Canada's railways will likely continue. However, the acquisition attempt by CN Rail has been shut down, and it's very likely the railroad will not make the acquisition.

The dip in price because of the acquisition new reminded us exactly of the Alimentation Couche Tard failed acquisition attempt of Carrefour. It took Couche-Tard a little over 3 months to recover from the 20% dip in price after the acquisition was released.

Moving on, despite its size, CN Rail has been able to adapt, re-route and focus operations on those customers that ran essential services.

The company’s handling of the pandemic has been rightfully lauded by industry experts. Investors are in good hands with CN Rail, and the short term negative sentiment due to the acquisition attempt will, in our eyes, be quickly forgotten.

Right now, Canada's railways look expensive. However, they've always looked expensive. If you're looking to add, timing the market on either CN or CP Rail will likely be a wasted effort. Just scoop them up and tuck them into the core holdings of your portfolio.

10 year returns of CNR vs the TSX:

TSE:CNR Vs TSX Returns 10 Year

2. Royal Bank of Canada (TSX:RY)

Royal Bank dividend

The Royal Bank of Canada (TSX:RY) is probably one of the most popular stocks here in Canada.

The company is a global enterprise, with operations in Canada, the United States, and 40 other countries.

The company has been named one of Canada's most valuable brands for 6 years running, and its reputation is second to none in terms of customer satisfaction. With a market capitalization of nearly $180B, Royal Bank is one of the best Blue Chip stocks to add to your portfolio today.

The company's dividend is strong, with a yield of over 3% and an ten-year dividend growth streak. The dividend is also growing at an impressive pace, with a five-year growth rate of over 6.5%.

The Canadian banking industry is one of the strongest sectors in the country, if not the world. While banks around the world were slashing dividends and closing their doors during the 2008 financial crisis, all of the Canadian banks held strong. Although their share prices fell considerably, recovery was quick and their dividends were never cut.

Although banks struggled during this pandemic, a similar theme is occurring – reliable dividends and better than expected earnings.

While many countries are asking banks to cut the dividend, or some are being forced to as a result of the pandemic, Canada’s big banks remain among the safest income stocks on the planet.

The Feds have asked the banks not to raise dividends, a small and reasonable ask considering the current environment.

However, now that we are getting to the other side of this pandemic and restrictions are easing, it is very likely we see restrictions on dividend growth removed. And, Royal Bank, along with all of the other Canadian major banks, will likely raise dividends very soon after given the green light.

Royal Bank's international exposure and sheer size was brought to light during the COVID-19 pandemic, and it ended up being one of the more reliable Canadian stocks of 2020. As such, it's worthy of its blue-chip title.

You can't go wrong with any of the Big 5 banks here in Canada. They are all excellent Canadian Blue Chip stocks, and we could just as easily include all 5 on this list.

However, Royal Bank is certainly one of the best.

10 year returns of RY vs the TSX:

TSE:RY Vs TSX Returns

1. Fortis (TSX:FTS)

Fortis dividend

You won't find a Blue Chip stock list that doesn't contain Fortis (TSX:FTS) – at least you shouldn’t. If you do, maybe keep looking.

This Canadian company is among the top 15 utilities in North America, and has over 10 utility operations under its belt in Canada, the United States, and the Caribbean.

The utility industry is highly regulated, which often leads to consistent cash flows. As the population keeps growing, energy demands will grow right along with it and utility companies are positioned to profit.

Fortis has the second longest dividend growth streak in the country at 48 years. This has cemented the company as one of the best investments in Canada and definitely worthy of its blue-chip title.

Yielding over 3.5%, the company has grown the dividend at a 5 year rate of 6.79% with a payout ratio of under 60%. The good news?

Fortis recently extended its targeted annual dividend growth rate of 6% to 2025. That means investors can expect a 6% annual raise to the dividend in each of the next five years. That type of transparency and reliability is rare.

Utility companies rely heavily on debt to finance capital investments. As such, these companies are prone to setbacks when interest rates rise. This is something you need to keep an eye on if you're looking to invest in a Canadian blue chip stock like Fortis.

The Bank of Canada has changed its tune on interest rates, and we could see them rise as early as 2022 to prevent the economy from overheating as a result of reopening's on the back end of the pandemic.

However, even if the BoC were to raise interest rates, it will likely take many subsequent raises to get back to even pre-pandemic rates.

And in addition to this, rising interest rates seemed to have no negative consequences for the utility giant's stock price over the last couple of years.

Fortis’ stock is as close to a set and forget investment as you can get.

10 year returns of FTS vs the TSX:

TSE:FTS 10 Year Returns vs TSX

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Huge Dock Worker Protests In Italy, Fears Of Disruption, As Covid ‘Green Pass’ Takes Effect

Huge Dock Worker Protests In Italy, Fears Of Disruption, As Covid ‘Green Pass’ Takes Effect

Following Israel across the Mediterranean being the first country in the world to implement an internal Covid passport allowing only vaccinated citize

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Huge Dock Worker Protests In Italy, Fears Of Disruption, As Covid 'Green Pass' Takes Effect

Following Israel across the Mediterranean being the first country in the world to implement an internal Covid passport allowing only vaccinated citizens to engage in all public activity, Italy on Friday implemented its own 'Green Pass' in the strictest and first such move for Europe

The fully mandatory for every Italian citizen health pass "allows" entry into work spaces or activities like going to restaurants and bars, based on one of the following three conditions that must be met: 

  • proof of at least one dose of Covid-19 vaccine

  • or proof of recent recovery from an infection

  • or a negative test within the past 48 hours

Via AFP

It's already being recognized in multiple media reports as among "the world's strictest anti-COVID measures" for workers. First approved by Italian Prime Minister Mario Draghi's cabinet a month ago, it has now become mandatory on Oct.15.

Protests have been quick to pop up across various parts of the country, particularly as workers who don't comply can be fined 1,500 euros ($1,760); and alternately workers can be forced to take unpaid leave for refusing the jab. CNN notes that it triggered "protests at key ports and fears of disruption" on Friday, detailing further:

The largest demonstrations were at the major northeastern port of Trieste, where labor groups had threatened to block operations and around 6,000 protesters, some chanting and carrying flares, gathered outside the gates.

    Around 40% of Trieste's port workers are not vaccinated, said Stefano Puzzer, a local trade union official, a far higher proportion than in the general Italian population.

    Workers at the large port of Trieste have effectively blocked access to the key transport hub...

    As The Hill notes, anyone wishing to travel to Italy anytime soon will have to obtain the green pass: "The pass is already required in Italy for both tourists and nationals to enter museums, theatres, gyms and indoor restaurants, as well as to board trains, buses and domestic flights."

    The prime minister had earlier promoted the pass as a way to ensure no more lockdowns in already hard hit Italy, which has had an estimated 130,000 Covid-related deaths since the start of the pandemic.

    Meanwhile, the requirement of what's essentially a domestic Covid passport is practically catching on in other parts of Europe as well, with it already being required to enter certain hospitality settings in German and Greece, for example. Some towns in Germany have reportedly begun requiring vaccination proof just to enter stores. So likely the Italy model will soon be enacted in Western Europe as well.

    Tyler Durden Sat, 10/16/2021 - 07:35

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    China Coal Prices Soar To Record As Winter Freeze Spreads Cross The Country

    China Coal Prices Soar To Record As Winter Freeze Spreads Cross The Country

    One week ago we discussed why the "worst case" scenario for China’s property crisis is gradually emerging; to this we can now add that China’s worst case energy crisi

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    China Coal Prices Soar To Record As Winter Freeze Spreads Cross The Country

    One week ago we discussed why the "worst case" scenario for China's property crisis is gradually emerging; to this we can now add that China's worst case energy crisis scenario is also about to be unleashed as cold weather swept into much of the country and power plants scrambled to stock up on coal, sending prices of the fuel to record highs.

    Electricity demand to heat homes and offices is expected to soar this week as strong cold winds move down from northern China, according to Reuters with forecasters predicting average temperatures in some central and eastern regions could fall by as much as 16 degrees Celsius in the next 2-3 days.

    Shortages of coal, high fuel prices and booming post-pandemic industrial demand have sparked widespread power shortages in the world's second-largest economy. Rationing has already been in place in at least 17 of mainland China's more than 30 regions since September, forcing some factories to suspend production and further disrupting already broken supply chains.

    On Friday, the most-active January Zhengzhou thermal coal futures closed at a record high of 2,226 per tonne early. The contract has risen almost 200% year to date.

    China's three northeastern provinces of Jilin, Heilongjiang and Liaoning - also among the worst hit by the power shortages last month - as well as several regions in northern China including Inner Mongolia and Gansu have started winter heating, which is mainly fuelled by coal, to cope with the colder-than-normal weather.

    Meanwhile, even though Beijing has taken a slew of measures to contain coal price rises including raising domestic coal output and cutting power to power-hungry industries and some factories during periods of peak demand, so far all measures have failed with coal surging by 40% in just the past three days. Beijing has also repeatedly assured users that energy supplies will be secured for the winter heating season, and went so far as to order energy firms to "secure supplies at all costs." Well, the energy firms heard it, because on that day, thermal coal closed at 1,436 yuan. Two weeks later it is some 800 yuan higher.

    Unfortunately for Beijing, the power shortages are expected to continue into early next year, with analysts and traders forecasting a 12% drop in industrial power consumption in the fourth quarter as coal supplies fall short and local governments give priority to residential users.

    Earlier this week, we reported that China undertook its boldest step in a decades-long power sector reform when it allowed coal-fired power prices to fluctuate by up to 20% from base levels from Oct. 15, enabling power plants to pass on more of the high costs of generation to commercial and industrial end-users. read more

    Steel, aluminium, cement and chemical producers are expected to face higher and more volatile power costs under the new policy, pressuring profit margins.

    Meanwhile, the latest Chinese "data" on Thursday showed factory-gate inflation in September hit a record high; but since thermal coal is the one commodity that correlates the closest to PPI, absent a sharp drop in coal prices in the next few weeks, expect the next PPI print to be far higher. Meanwhile as the power crisis leads to further shutdowns in domestic production, some banks - such as Nomura - have gone so far to predict that China's GDP is set to shrink in coming quarters.

    China, which laughably aims to be "carbon neutral" by 2060 even as its president announced he will skip the COP26 UN Climate Change Conference in Glasgow, has been "trying" to reduce its reliance on polluting coal power in favor of cleaner wind, solar and hydro. But coal remains the source for some 70% of China's electricity needs.

    Of course, China is not the only nation struggling with power supplies, which has led to fuel shortages and blackouts in many European countries. and threatens to send US heating bills up as much as 50% this winter. he crisis has highlighted the difficulty in cutting the global economy's dependency on fossil fuels as world leaders seek to revive efforts to tackle climate change at talks next month in Glasgow.

    China will strive to achieve carbon peaks by 2030, Vice Premier Han Zheng said in a video message at the Russian Energy Week International Forum, according to state-run news agency Xinhua late on Thursday. He also said that China and Russia are important forces leading the energy transition and they should cooperate and ensure smooth progress of major oil and gas pipeline and nuclear power projects.

    Translation: Russia better save that nat gas and not ship it to Europe as China will soon be needed even BCF Russia an provide. As for China

     

    Tyler Durden Fri, 10/15/2021 - 22:50

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    Retail And Food Sales: If It’s Not Inflation, And It’s Not, Then What Is It?

    OK, so we went through the ways and reasons consumer price increases are not inflation, cannot be inflation, are nowhere near actual inflation, and what all that really means. The rate they’ve gone up hasn’t been due to an overactive Federal Reserve,…

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    OK, so we went through the ways and reasons consumer price increases are not inflation, cannot be inflation, are nowhere near actual inflation, and what all that really means. The rate they’ve gone up hasn’t been due to an overactive Federal Reserve, so it has to be something else. This is why, though the bulge has been painful, it’s already beginning to normalize. Without a persistent monetary component (in reality, not what’s in the media) the economy will adjust eventually.

    It already has. Several times, and that’s part of the problem.



    If not money, and it’s not, then what is behind the camel humps? No surprise, Uncle Sam’s ill-timed drops along with reasonable rigidities in the supply chain.

    An Economist might call this an accordion effect. One recently did:

    The closures and reopenings of different industries, coupled with the surges and lags in consumer purchasing during the pandemic, have caused an “accordion effect,” says Shelby Swain Myers, an economist for American Farm Bureau Federation, with lots of industries playing catch-up even as they see higher consumer demand.

    Not just surges and lags, but structural changes that have been forced onto the supply chain from them. With the Census Bureau reporting US retail sales today, no better time than now and no better place than food sales to illustrate the non-economics responsible for the current “inflation” problem.

    When governments panicked in early 2020, they shut down without thinking any farther than “two weeks to slow the spread.” This is, after all, any government’s modus operandi; unintended consequences is what they do.

    The food supply chain had for decades been increasingly adapted to meeting the needs of two very different methods of distributing food products; X amount of capacity was dedicated to the at-home grocery model, while Y had been set up for the growing penchant for eating out (among the increasingly fewer able to afford it). Essentially, two separate supply chains which don’t easily mix; if at all.

    Not only that, food distributors can’t simply switch from one to the other. And even if they could, the costs of doing so, and the anticipated payback when undertaking this, were and are massive considerations. McKinsey calculated these trade-offs in the middle of last year, sobering hurdles for an already stretched situation back then:

    Moreover, many food-service producers have already invested in equipment and facilities to produce and package food in large multi-serving formats for complex prepared-, processed-, frozen-, canned-, and packaged-food value chains. It would be highly inefficient to reconfigure those investments to single service sizes.

    And if anyone had reconfigured or would because they felt this economic shift might be more permanent:

    For food-service producers, the dilemma is around the two- to five-year payback period of new packaging lines. Reinvesting and rebalancing a food-service network for retail is not a straightforward decision. Companies making new investments would be facing a 40 percent or more decline in revenue. And any number of issues could extend the payback period or make investments unrecoverable. Forecasts are uncertain, for example, about the duration of pandemic-related demand shifts, the recovery of the food-service economy, and the timeline of returning to full employment.

    So, for some the accordion of shuttered restaurants squeezed food distributors far more toward the grocery and take-home way of doing their food businesses. And it may have seemed like a great bet, or less disastrous, as “two weeks to slow the spread” morphed to other always-shifting government mandates which appeared to make these non-economics of the pandemic a permanent impress.

    More grocery, less dining. Forever after.

    In one famous example, Heinz Ketchup responded to what some called the Great Ketchup/Catsup? Shortage by rearranging eight, yes, eight production lines to spit out their tomato paste in individual servings rather than bottles. CEO Miguel Patricio told Time Magazine back in June (2021) there hadn’t actually been any shortage of product, just the wrong packaging for it:

    It’s not that we don’t have ketchup. We have ketchup, but in different packages. The strain on demand started when people stopped going to restaurants and they were ordering takeout and home delivery. There would be a lot of packets in the takeout orders. So we have bottles; we don’t have enough pouches. There were pouches being sold on eBay.

    But then…vaccines. Suddenly, after over a year of the above, by April 2021 the doors were flung back open, stir-crazy Americans flew back to their local pubs and establishments (see: below) and within months, according to retail sales, it was almost back to normal again. Meaning pre-COVID.



    The accordion had expanded back out but how much of the food services supply chain had been converted to serve the eat-at-home way which many companies had understandably been led to believe was going to be a lasting transformation?

    Do they undertake even more costly and wasted investments to go back? Maybe they resist, just shipping what they have even if not fully suited in the way it had been before all this began.

    Does Heinz spend the money to reconfigure those same eight production lines so as to revert to producing their ketchup in bottles? Almost certainly, but equally certain they’re going to take their sweet time doing it; milking every last ounce of efficiency – limiting their losses, really – they can out of what may prove to have been a bad decision (again, you can’t really fault Mr. Patricio for being unable to predict pandemic politics).

    Rancher Greg Newhall of Windy N Ranch in Washington likewise told NPR that he has the animals, beef, pork, lamb, chicken, goat, but distributors are caught in the accordion (Newhall didn’t use that term):

    NEWHALL: People don’t understand how unstable and insecure the supply chain is. That isn’t to say that people are going to starve, but they may be eating alternate meats or peanut butter rather than ground beef.

    GARCIA-NAVARRO: Newhall says he hasn’t had any issues raising his animals. It’s the processing and shipping that’s the bottleneck, as the industry’s biggest players pay top dollar to secure their own supply chains.

    The usual credentialed Economist NPR asked for comment first tried to blame LABOR SHORTAGE!!! issues, including those the mainstream had associated with the pandemic (closed schools forcing parents to stay home, or workers somehow deathly afraid of working in close proximity with others) before then admitting:

    CHRIS BARRETT: And there’s also the readjustment of the manufacturing process. As restaurants are quickly opening back up, the food manufacturers and processors have to retool to begin to supply again the bulk-packaged products that are being used by institutional food service providers.

    With US retail sales continuing at an elevated rate, the pressures on the goods sector are going to remain intense.


    Because, however, this is not inflation – there’s no monetary reasons behind the price gouge – the economy given enough time will adjust. And it has adjusted in some ways, very painful ways.

    Painful in the sense beyond just hyped-up food prices and what we pay for gasoline lately, the services sector has instead born the brunt of this ongoing adjustment. Consumers have bought up goods (in retail sales) at the expense of what they aren’t buying in services (not in retail sales); better pricing for sparsely available goods stuck in supply chains, seeming never-ending recession for service providers.

    According to the BEA’s last figures, overall services spending remains substantially lower than when the recession began last year. And it shows in services prices which had been temporarily boosted by Uncle Sam’s helicopter only to quickly, far more speedily and noticeably fall back in line with the prior, pre-existing disinflationary trend following a much smaller second camel hump.



    Once the supply and other non-economic issues get sorted out, we would expect the same thing in goods, too. It is already shaping up this way, though bottlenecks and inefficiencies are sure to remain impediments and drags well into next year.

    Those include other factors beyond food or domestic logistical nightmares. Port problems, foreign sourcing, etc. The accordion has played the entire global economy, and in one sense it has created the illusion of recovery and inflation out of a situation which in reality is nothing like either.

    That’s the literal downside of transitory. We can see what the price bulge(s) had really been, and therefore what it never was.

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