Thank you, Mr. Chairman.
Good morning, committee members and fellow witnesses. I appreciate this opportunity to appear before you today.
My name is Ron Watkins. I'm the president of the Canadian Steel Producers Association, an industry with annual shipments in the range of $12 billion to $14 billion and employing some 18,000 people in Canada. We operate steel mills in Alberta through to Quebec. With other parts of the steel industry, we're an economic force across the country.
Today the focus of this committee is the impact of sharply lower oil prices on the manufacturing sector. You've already heard from many experts, including this morning's panel, with multiple perspectives. I will provide you our views from the point of view of the Canadian steel industry.
First, regarding the potential impact on our own production costs, we foresee modest net benefits at best. Our processes run primarily on natural gas and electricity, and the cost of the latter especially remains relatively high in Canada. Lower-priced oil could reduce our transportation costs, although that is contingent on those pass-throughs from the shippers. We've yet to experience that.
However, a key point here is that Canada is not an energy island. Our competitors in other jurisdictions are also experiencing lower energy prices, so our relative energy cost differentials have not shifted as much as absolute costs have. I think we've heard similar observations on exchange rate movements globally, as well as in North America.
Second, regarding the potential impacts of lower oil prices on our customers, and particularly our manufacturing customers, there's a range of factors at play in various sectors, as you've heard already today from other experts. Associated exchange rate effects can help exports, certainly, but they also increase input costs. Structurally, the erosion of the Canadian manufacturing base—this is a prime customer for our industry—over the past few years will not suddenly or easily be reversed by short-term shifts in input costs. Plants that closed will not reopen or be quickly replaced.
Manufacturing investment needs sustainable medium-term economic conditions and supportive public policies. That is why our industry consistently advocates pro-manufacturing policies across a range of policy fields. This includes the long-term extension of the accelerated capital cost allowance—we appreciate this committee's support for that—and competitive tax rates. It is also why we emphasize strong trade remedy laws to ensure fair competition in our market to counter the injury from dumped and subsidized imports, as recent rulings of the Canadian International Trade Tribunal have demonstrated.
Third, and very importantly for our sector, decreased capital spending in the energy sector will have a direct negative impact on the demand for steel products. For us, energy is much more than a cost factor. It's a vital customer for a wide range of steel products: construction materials, fabricated structures, drilling equipment, processing plants, storage facilities, and of course, pipelines and railcars to get Canadian oil and gas products to domestic and export markets.
Mayor Blake can probably speak better than I to the range and volumes of steel that move through her community. I look forward to her testimony too.
The energy-steel relationship embodies supply chains that stretch across Canada, beginning with iron ore mined in Quebec or recycled steel from multiple sources. These materials are transformed into steel in several provinces, then formed into pipe and tube and multiple other steel products for exploring, developing, processing, and transporting oil and gas resources.
In doing so, we employ thousands of people directly and indirectly in well-paid industrial jobs. When the energy sector is going, so do these opportunities, but the converse, of course, is also true, as we have seen already with hundreds of recent layoffs in our industry. In this key respect, the decline in oil prices has a direct negative impact on Canadian manufacturing and in turn on our own suppliers.
To summarize, lower oil prices are in no way a silver bullet for an expansion of Canadian manufacturing, certainly not for our industry, particularly because of the impacts on energy sector demand. We need to look to the medium-term outlook both for energy costs and for other structural factors that ultimately drive investment decisions.
Finally, it remains important that government policies across a range of factors help to set investment conditions that will strengthen the major supply chains we serve, including the energy sector itself.
In closing, Mr. Chairman, our industry feels that Canadians really need to be dissuaded from this false dichotomy between manufacturing and energy, or worse still, between west and east. The two industries are integrated through cross-country supply chains. More broadly, we continue to encourage this committee to focus on the structural policies that will contribute to investment and production in each of the supply chains we serve.
Thank you very much, Mr. Chairman.