The Canadian Plastics industry in Canada is ranked 4th overall of all manufacturing industries behind Motor Vehicles, Petroleum Refineries and Motor Vehicle Parts. It is also ranked #1 by employment. Valued at an estimated US$30.6 billion in 2007, the plastics industry encompasses four main segments as follows: processors (manufacturers of plastic products); resins; tool, die and mold makers; and machinery. In Ontario, the plastics and resins sector is the 2nd largest industry after the auto sector, and Ontario is the 3rd largest plastics producing region in North America (US$ 24.7 billion in 2007). It accounts for 66 percent of Canada’s shipments of plastic products, 61 percent of raw materials and machinery shipments and 85 percent of mold shipments; while retaining an 81 percent share of U.S. plastics imports. The Canadian plastics market, as a whole, will remain relatively stagnant, slowing slightly over the next year, with certain sub-sectors estimated to show growth at 2-3 percent - e.g. plastics resins and plastics machinery.
Overall, demand for U.S. manufactured plastic products will improve in 2008. This upturn is predicated on several industry factors, most notably a drop-off in Canadian production, lack of support from the 2008 Federal Budget, and the emerging need for “green” technologies and subsequent research and development (R&D).
According to Statistics Canada’s Business Conditions Survey, reports of production impediments by Canadian manufacturers in 2007 increased by 8 percent from 2006. The rapid appreciation in the value of the Canadian dollar, along with higher energy costs, skilled-labor shortages, and strong competition from emerging economies such as China and India, have had a negative impact on profitability in many parts of the manufacturing sector. In response to these challenges, many manufacturers have had to take a variety of measures to adjust to the changes. The responses include lowering labor costs, increasing inputs/processing abroad, increasing investment in machinery and equipment, raising selling prices, reorienting production and increasing financial hedging. As a result, total industry production dropped 1 percent from 2006 to US$33.8 billion, and is forecasted to decrease an additional 2 percent in 2008.
Moreover, despite hopes to the contrary, the 2008 Federal Budget did not supply plastics manufacturers with the relief necessary to increase production. The 2008 Canadian Federal Budget (released February 2008) fell short of meeting the recommendations outlined by the May 2006 House of Commons Standing Committee on Industry, Science and Technology report Challenges Facing the Canadian Manufacturing Sector, namely the inability of small Canadian companies – who are the majority in the industry - to match R&D rates of U.S. competitors. Though the Budget makes some progress via the Accelerated Capital Cost Allowance and Scientific Research and Experimental Tax Credit, its measures do not resolve the obstacles facing the plastics industry. In the past, American imports have grown steadily while Canadian domestic production grew on parallel. The current inability of smaller Canadian firms to compete in research and development with larger, well-funded American businesses has resulted in a reallocation of funds by several domestic manufacturers, engendering a decline in overall production. Consequently, domestic demand for manufactured plastic products will abound going forward.
Given the current production environment within the plastics manufacturing sector, prospects for U.S. imports in the Canadian market will not only remain strong, but also improve in response to the aforementioned decline in domestic production and the resulting rise in demand. Despite the appreciation of the Canadian dollar and current slowdown of the U.S. economy, American plastics manufacturers will find opportunities to increase imports as demand adjusts as a corollary to decreased domestic production. Demand is slated to grow 1-2 percent through 2008, with American plastic imports to Canada expanding 3 percent to a little over US$11.6 billion (roughly 75 percent of total plastics imports).
At present, the Federal and Provincial governments alike are undertaking several environmental sustainability based initiatives, such as Natural Resources Canada Office of Energy Efficiency’s Canadian Industry Program for Energy Conservation (CIPEC), ecoEnergy Retrofit Incentive for Buildings, Federal Building Initiative, and Ontario BioAuto Council Commercialization Fund. As such, there exists a burgeoning market for “green” technologies within the plastics sector. While the Federal government has earmarked $250 million for research and development in Canada’s manufacturing industries over the next five years, the plastics sector will receive only a small proportion. Subsequently, given the distinct advantage held by US-based companies in R&D, combined with the aforementioned decline in domestic production and lack of R&D funding, American plastics manufacturers will find an increased demand for their R&D expertise and environmentally friendly products. Demand will be greatest within the packaging, construction, and automotive sub-sectors, Canada’s three largest plastics end-use markets.
While demand for plastics as a whole will increase slightly due to the decline in local production, the synthetic resin industry has experienced significant growth, with shipments amounting to roughly $11 billion in 2007, up from the previous year. Demand for plastic resins is projected to grow slightly ahead of the industry average at 3-4 percent through 2008.
By Madellon Lopes