The Impact of Declining Canadian Exports on Commodity-Linked Assets

The Canadian economy's reliance on commodity exports has long been a double-edged sword. While resource wealth has fueled growth, it has also exposed the country to volatile global markets. In 2025, declining exports in key sectors-energy, metals, and agriculture-have sent ripples through equity valuations and prompted strategic shifts in sector rotation. Investors and policymakers alike are grappling with the implications of these trends, which reflect broader geopolitical and trade policy dynamics.

Energy: Volatility and Valuation Pressures

The energy sector, a cornerstone of Canadian exports, has experienced sharp swings in 2025. Crude oil exports surged by 3.8% in June amid Middle East tensions, according to Trading Economics, but by August, prices had plummeted after OPEC+ production hikes, according to the Bank of Canada's raw materials index. This volatility has directly impacted equity valuations. As of June 30, 2025, the energy sector's EV/EBITDA multiple stood at 7.47, according to Siblis Research, a historically low figure reflecting investor caution. Meanwhile, the sector's P/E ratio hovered around 12.4x, per Simply Wall St, signaling muted earnings growth despite asset quality.

Sector rotation has followed suit. With energy stocks trading at discounts, investors have shifted toward rate-sensitive sectors like utilities and healthcare, according to ValueTrend. This shift underscores a broader market skepticism about the sector's ability to sustain returns amid regulatory headwinds, such as Canada's Clean Electricity Regulations, according to BLG. However, opportunities persist: focused M&A activity in liquids-rich assets and advancements in geothermal and small modular reactor technologies could reinvigorate valuations, notes ATB Capital Markets.

Metals: Tariffs and Divergent Performance

The metals sector has faced a bifurcated landscape. Gold exports surged, driven by global demand and a 2.0% rise in August prices, per Trading Economics wholesale prices, yet aluminum and steel exports collapsed by 11.3% and 11.4%, respectively, due to U.S. tariffs, Trading Economics reported. These divergent trends have created valuation disparities. While gold producers like Barrick Gold have benefited from elevated prices, according to Policy Options, steel and aluminum firms face earnings erosion, reflected in their sector's lower EV/EBITDA multiples compared to materials peers (14.03x for materials vs. 7.47x for energy), per Siblis Research.

Sector rotation strategies now prioritize critical minerals like lithium and cobalt, which are essential for clean technology and AI hardware, according to an EDC report. Canada's push for domestic refining and partnerships with Indigenous communities, notes Torys LLP, aims to secure supply chains and enhance equity appeal. However, trade tensions with the U.S. and China remain a drag, necessitating diversified export corridors.

Agriculture: From Commodities to Value-Added Innovation

Agricultural exports, which surged by 6.7% in June, according to Trading Economics, have since faltered as China's tariffs on canola and other crops depressed prices, per the Bank of Canada's raw materials index. This volatility has pressured valuations for agribusiness firms, though the sector's strategic pivot to value-added products-such as plant-based proteins and AI-driven crop monitoring-offers long-term upside, as noted by Policy Options.

Equity valuations in agriculture have benefited from this innovation pivot. While raw commodity exports remain exposed to trade shocks, firms investing in agri-tech and sustainable supply chains have attracted higher EV/EBITDA multiples, according to Siblis Research. Sector rotation here favors companies with R&D capabilities, as global demand for sustainable food solutions grows, according to Forbes.

Broader Implications and Strategic Recommendations

The interplay between declining exports and equity valuations highlights a critical lesson: Canadian commodity-linked assets are increasingly sensitive to trade policy and geopolitical risks. For investors, this underscores the need for sector rotation strategies that balance exposure to cyclical energy and metals with defensive agriculture and materials plays.