MISSISSAUGA, ONTARIO (Jan. 19, 11 a.m. EST) — Canada's plastics processors should fare better in 2004 than they did last year, according to the industry's chief economist.
Processor shipments increased only 3 percent in 2003, the slowest year in a decade, said Faris Shammas, vice president of business and economics for the Canadian Plastics Industry Association of Mississauga.
The rise was a fraction of the 9 percent average annual increase in sales experienced by Canada's pro-cessors in the 1992-2002 period, Shammas said in a telephone interview. Last year's performance contrasted with the 9 percent increase in 2002 from the C$32.2 billion (US$20.8 billion) shipment record in 2001.
Shammas said a rapid rise in the value of the Canadian dollar hurt the competitiveness of Canadian processors and thus their shipments of plastic products. Canada's dollar started 2003 valued at less than 65 cents in U.S. currency. Its value vs. the U.S. greenback grew steadily through the year, ending above 75 U.S. cents.
During its peak periods last year, Canada's dollar reached highs not seen for a decade, and last year's 15 percent gain eroded shipments to the United States, the destination for about two-thirds of Canadian exports.
Other factors played lesser roles in the slowdown, but they underlined a string of bad luck for Canada's economy. A major electrical power blackout in central and eastern Canada in August led to unscheduled factory shutdowns. Toronto's bout with SARS early in the year curtailed social and economic activity, indirectly depressing demand for packaging and other materials and services in the country's largest city.
Canada's processors are working furiously to boost their competitiveness in a strong-dollar environment, Shammas noted. Some economists predict the nation's dollar will float to 80 cents vs. the U.S. buck in 2004. Others, however, think any rise will be followed by a decline to as low as 72 cents this year. While there is little agreement on the dollar's fate, Shammas said Canada's central bank probably will increase lending interest rates to prevent it from overheating.
Shammas said plastic product shipments could grow 5-7 percent in 2004. That rate would outpace Canada's expected overall economic growth, forecast at 2.5-3.5 percent by various analysts. Plastic shipments have outpaced general economic growth for decades as polymers replaced traditional materials and opened new markets. Even last year, plastic product shipments beat Canada's overall economic growth, estimated at 1.7 percent.
Royal Bank of Canada is one of the optimistic forecasters, pegging economic growth at 3.5 percent in 2004 as Canadian exporters latch onto U.S. expansion.
In domestic markets, Canada's housing activity will be static this year after a 7.8 percent hike in 2003, according to Royal Bank. Toronto Dominion Bank also sees a cooled-off housing market, but one that still is relatively healthy.
Auto parts makers will rely on the strength or weakness of U.S. markets, where most Canadian-assembled vehicles are sold and which are a key outlet for Canadian-made parts. Last year, vehicle assembly in Canada was down about 4 percent, according to DesRosiers Automotive Consultants Inc. of Toronto.
Canada's vehicle parts shipments are down about 8 percent from the C$36 billion (US$23 billion) peak in 2000, partly because of the strong Canadian dollar. Long-term growth in the parts sector could depend on increased assembly activity — Canada has not attracted a new vehicle assembly operation since 1989. The U.S. southeast has attracted most of the 19 new assembly plants announced in that 14-year period, according to the Canadian Auto Workers union.
Canadian firms are investing aggressively in new technologies, skills training, information management and restructuring to meet competitive challenges, according to the Canadian Manufacturers and Exporters trade association in Ottawa. Members said in a CME survey that they generally are optimistic that operating performance will improve in 2004, although they also expect continued tough business conditions and no letup in the country's regulatory environment. A majority of companies polled said they expect to expand Canadian and U.S. operations during the next three years. A strong Canadian dollar most often was cited as the major challenge they face during the next half-decade.