Ontario must map strategy to attract new chemical investment - group

13 August 2010 18:39  [Source: ICIS news]

TORONTO (ICIS)--Ontario must map out a strategy to attract new investments in its chemical industry to replace closed plants and production, especially at the Sarnia petrochemicals hub near the US border to Detroit, Michigan, a trade group said on Friday.

Ontario accounted for around Canadian dollar (C$) 19bn ($18bn), or 45% of Canada’s C$42bn chemical sector, the Ottawa-based Chemistry Industry Association of Canada (CIAC) said in a paper on chemical industry competitiveness in Canada’s largest province.

However, the proportion of basic chemicals and resins made in Ontario had been declining in past years amid plant closures and only little new investment, the group said.

The recession had further weakened the already ailing sector as the decline in demand from key chemical industry customers in housing and automotive had been “dramatic,” the group said.

Critical chemical industry competitiveness concerns in Ontario included feedstock availability, electricity prices and energy, and taxation, among others, it said.

At Canada’s largest chemicals production complex in Sarnia, some producers, including Dow Chemical, have permanently shut plants in recent years because of insufficient ethylene and ethane supplies.

Said CIAC: “We are not seeing replacement investments to maintain the overall integrity of the Sarnia area chemical complex and this is a concern.”

However, one key positive development on the feedstock side were efforts to tap ethane in shale gas from the US Marcellus basin for chemical production at Sarnia, CIAC said.

New supplies from the Marcellus were the first opportunity for new growth in Ontario’s chemical industry in decades, it added.

Canada’s NOVA Chemicals is part of a venture that studies the construction of a pipeline to ship ethane from the Marcellus in Pennsylvania to Sarnia.

An equally important concern were electricty supplies and prices, CIAC said.

Ontario-based chemical producers have been hampered by high rates that would likely increase even further as a result of Ontario's new Green Energy Act, which threatened to “crowd out” industrial users, the group said.

“Industrial consumers are concerned that [Ontario’s] focus on renewable energy sources which require back-up power will be too expensive to permit solid industrial growth,” the group said.

While the pursuit of clean renewable power was a “good goal,” electricity prices mattered, it said, adding that prices should not be allowed to go beyond what chemical and others in the manufacturing industry could afford.

On the positive side, CIAC lauded a major tax reform in Ontario - namely, the introduction of the new "harmonised sales tax" or HST, effective 1 July.

The HST combines an 8% provincial sales tax (PST) with a 5% federal goods and services tax (GST) into one 13% tax, and thus establishes a value-added tax system in Ontario that is comparable with those in the EU and most industrialised countries.

Importantly, under the HST, manufacturers can claim full tax credits of 13%, whereas previously they were not allowed to deduct PST on the cost of materials and other products they buy.

Economists estimated that Ontario would see C$47bn in increased capital investment as a result of the HST, as well as the creation of 590,000 new jobs, the group said.

Major chemical firms with production in Ontario include NOVA Chemicals, Dow Chemcical, DuPont Canada, LANXESS, Invista, and ExxonMobil’s Canadian Imperial Oil affiliate, among others.

 ($1 = C$1.04)

For more on NOVA, Dow and other producers visit ICIS company intelligence
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By: Stefan Baumgarten
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