Canada's plastics and rubber sector will continue to show suppressed production during the next few years, according to a forecast by the Conference Board of Canada.
“Right now we have a slow recovery,” said Michael Burt, associate director of the think tank's industrial economic trends program.
Weakness in the U.S. economy plays a role in Canada's performance, he said in a telephone interview from the board's office in Ottawa, Ontario.
“The United States lost more than 8 million jobs in the recession and so far has got back only [1 million to 1.5 million],” Burt estimated. “It will take two to three years before U.S. employment will be back up to pre-recession levels.”
Canada's plastics and rubber industry had revenues of C$20.9 billion (US$21.1 billion) in 2010, up 9 percent from 2009's revenues but well short of the pre-recession C$25.5 billion (US$25.8 billion) in 2007. Pre-recession activity won't be equaled until 2014, the Conference Board predicts.
During the next few years, prices will remain weak for plastics and rubber while profits will be healthy. Profits reached C$686 million (US$693 million) in 2010, up 32 percent from 2009. By 2015 they should top C$1 billion (US$1 billion).
The strong Canadian dollar will be a drag on exports, the board predicts. The dollar's strength is largely due to high prices for commodities such as oil and minerals, for which Canada is a major marketer.
“We expect oil prices to rise, putting upward pressure on the dollar,” Burt explained.
Offshore competition from countries like China and India also will crimp activity in Canada's plastics and rubber sector, according to the board.
“Canada's share of U.S. imports is shrinking and its share in domestic markets is shrinking,” Burt said.
Employment levels in the sector have fallen dramatically and are not expected to recover over the next several years. From employment of 120,700 in 2007 the level had fallen to 96,700 in 2010. By 2015 it will rise only to 101,800, the board projects.
Strong points of the sector include plastic's light weight and design flexibility, which bode well for new markets. Also, incomes in emerging countries are rising, leading to demand for a range of plastics products and packaging.
Increased production of biodegradable plastics is expected to be a major opportunity for the sector. Companies using biomass-derived plastics could enjoy cost advantages.
Statistics Canada also released numbers on the health of the plastics industry. Its data showed shipments for processed plastic products rose 6 percent to C$16.8 billion (US$17 billion) in 2010.
“It's nice to see a recovery,” said Mark Badger, president and CEO of the Canadian Plastics Industry Association. “Since 2005 there has been contraction.”
Badger said in a telephone interview from his Mississauga, Ontario, office that three subsectors should perform well this year.
“Packaging will continue to grow because plastics extend shelf life,” Badger said. For building products, the renovation sector should hold its own. Automotive parts should be relatively strong after a 32 percent climb in shipments in 2010.
Growth engines for plastics include medical applications, telecommunications and recycling activity, according to Badger.