InterviewCanadian dollar strength cuts into chemical profits

16 April 2010 17:15  [Source: ICIS news]

By Stefan Baumgarten

TORONTO (ICIS news)--The rise of the Canadian dollar relative to the US dollar in past weeks is cutting into Canadian chemical producers’ profits, a domestic industry official said on Friday.

The Canadian dollar (C$) – known as the “loonie” – has traded at around parity with the US dollar over the past two weeks after gaining steadily since the start of the year.

“[The C$ dollar strength] is absolutely going to make it less profitable to sell into the US,” David Podruzny, vice president of business and economics at chemical producers group Chemistry Industry Association of Canada (CIAC), told ICIS news.

Most Canadian chemical and plastics producers were exporting into the US - by far their largest export market - and pricing products in US dollars, he said.

However, producer's margins and profitability were still strong, Podruzny said. 

For one, Canada’s chemical industry had been able to reduce its input costs, mainly because prices for natural gas – the industry’s main feedstock – have remained favourable because of new gas finds in North America.

Canada’s petrochemicals industry is mostly gas-based, whereas many competitors rely on oil-based naphtha as their main feedstock, Podruzny said.

Also, a stronger Canadian dollar made investment in machinery and equipment more affordable for the industry, he said.

“A higher Canadian dollar usually means lower profits on the sales of our goods and cheaper access to machinery and equipment,” he said.

“While [the dollar strength] will hurt our profitability, our profitability on a global basis is still pretty strong,” he added.

Podruzny said the Canadian dollar strength was a reflection of the health of Canada's economy amid rising commodity prices as economies were recovering - not just in the US, but globally.

Most Canadian analysts expect the loonie to remain strong vis-à-vis the US dollar. It traded above parity against the US dollar at the end of 2007 but later receded.

In related chemical industry news this week, Canadian chemical railcar traffic for the week ended on 10 April jumped 42.8% to 14,372 from 10,061 in the same week last year. 

For the year-to-date period, Canadian shipments were up 25.5% to 206,423 from 164,544 in the same period in 2009, according to data from the American Association of Railroads.

($1 = C$1.01)

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By: Stefan Baumgarten
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