Canadian Synthetic Resins Industry.

The global demand for plastics has driven the growth of Canada's synthetic resins industry.

The driving force behind the growth in the synthetic resins industry over the past 20 years, has been the rapid worldwide growth in the plastic products industry. The plastic industry has grown

The Canadian synthetic resins industry had shipments of $6.3 billion in 1999, and employed about 9000 people at 105 establishments. The majority of larger firms operating in Canada are owned by US and European multinational firms that operate subsidiary or joint venture operations around the world. NOVA Chemicals, AT Plastics, and P[acute{e}]tromont are the largest producers with headquarters located in Canada. See Table 2.

The Canadian industry is concentrated in three provinces -- Alberta, Ontario and Qu[acute{e}]bec. Figure 2 shows the geographic distribution based on value of shipments. Plants based in Alberta produce commodity-grade thermoplastic resins from raw materials derived mainly from natural gas. The plants in Ontario and Qu[acute{e}]bec produce both thermoplastic and thermoset resins using raw materials derived from both crude oil and natural gas.

Salaries in the industry are also significantly higher than all-manufacturing averages reflecting the need for highly trained workers capable of using the sophisticated technology employed in these plants (Figure 3).

New Investments

Table 1 shows recent and announced investments in resin plant capacities.

Trade

Trends in trade orientation are shown in Figure 4. Canadian exports of synthetic resins have grown dramatically during the 1990s, from 40 per cent of total shipments in 1990 to 64 per cent in 1999. Canadian imports of resins have also increased significantly during this period and by 1999 captured about 68 per cent of total domestic consumption. This growth in two way trade reflects rationalization and specialization of the resins industry on a North American basis, and the increasing use of complex, higher-performance engineering resins that are not manufactured in Canada.

Tariffs on synthetic resins traded between Canada and the United States were completely eliminated on January 1, 1993. Under NAFTA, tariffs on resins between Canada and Mexico are already zero for some products, and will drop to zero for all products by January 1, 2003.

On a broader front, many countries participated in the Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT). Canadian Most Favoured Nation (MFN) import tariffs on resins will be harmonized at 6.5 per cent, once fully implemented. Export tariffs from Canada into other countries are highly variable. For countries, like Canada, that have signed-on to the Chemicals Harmonization Tariff Agreement, tariffs will drop to 6.5 per cent once fully implemented.

Technology

Access to technology is not an issue in the industry. For the most part, both the process and product technologies utilized in Canada are up-to-date and arc licensed from parent companies or other foreign chemical companies. Much of the new capacity that is being built is designed using state-of-the-art technology. Dow Chemical's new plant in Fort Saskatchewan will use its Insite(r) metallocene technology. NOVA's new plant in Joffre will represent the first commercialization of its Advanced Sclairtech(r) technology (developed in Canada). In today's free trade environment, investment in resins is attracted to Canada either due to its raw material cost advantage, primarily Alberta, or due to the fact that large portions of the North American market are in close proximity (primarily Sarnia and Montreal).

Canada-US Comparison

A direct Canada-US comparison is complicated by differences in statistical aggregations in the two countries.

Average salaries in the United States (converted to constant Canadian dollars) have consistently been higher than those in Canada (Figure 5). The level of output per employee has also been higher in the United States (Figure 6). Both of these differences have narrowed in recent years.

Gross margins -- defined as (value added -- total wages and salaries)/shipments -- are used as a crude measure of profitability for the resin industry in the two countries in Figure 7. Whereas Canada lagged the United States during the early l990s, by 1996 the gap had been closed, and in fact the Canadian industry had a slightly superior gross margin.

The rate of capital investment provides an indicator of the degree to which the industry has been modernizing its capacity in order to take advantage of new technologies. The relative levels of investment in Canada and the United States are shown in Figure 8. While the most recent data shows Canada lagging the United States, this is expected to change once the impact of the recent round of new investments in Alberta is reflected.

Prospects for the Future

Industry projections are for 5-7 per cent real average annual world-wide growth in consumption of synthetic resins over the next five years. Growth in North America is projected to be lower, perhaps 3-4 per cent, but still ahead of growth in the overall economy. It had been expected that Asia Pacific would see the highest rate of growth, but it remains to be seen what impact the present currency crises in that part of the world will have on these projections.

The outlook for the Canadian resin industry must be viewed in two distinct parts. Companies are investing heavily in new resin capacity in Alberta due to a feedstock price advantage compared to other North American locations. With these new investments, taken together with its existing infrastructure, the Alberta-based component of the industry will continue to improve its ability to compete globally in commodity thermoplastics.

The situation is different in Ontario and Quebec. Plants in and around Sarnia and Montreal are extremely well located with respect to proximity to large markets. However, both suffer from the fact that these plants were built prior to the FTA, and were designed to satisfy Canadian demand. None approaches world-scale capacity, which presents a competitive obstacle. These plants have developed strategies of supplying niche products to compensate for their lack of economies of scale. Both jurisdictions are working to improve their local investment climates so that they will once again attract major new investments.

John Margeson is a senior industry officer at Industry Canada with sectoral responsibilities that include synthetic resins and plastics products. Additional sectoral information can be viewed on Industry Canada's web site at http://strategis.ic.gc.ca/plastics. Margeson was a recipient of the 2000 Canplast award presented by the Canadian Plastics Industry Association for his contribution toward the advancement of the Canadian plastics industry.

                    Recent resin investments in Canada
Company            Location              Product
AT Plastics        Edmonton, AB          60 kt/yr EVA
Dow Chemicals      Fort Saskatchewan, AB 280 kt/yr PE
                   Sarnia, ON            10kt/yrPE
                   Sarnia, ON            23 kt/yr ESI (pilot plant)
Imperial Oil       Sarnia, ON            60 kt/yr PE
NOVA Chemicals     Joffre, AB            350 kt/yr PE
P[acute{e}]tromont Varennes, QC          20 kt/yr PE
Union Carbide      Prentiss, AB          300 kt/yr PE
                     Major firms involved in Canada's
                         synthetic resin industry.
                    Head Office
Company             Locations   Resins     Location of Plants
Alpha/Owens Corning US          UP         Guelph, ON
AT Plastics         Canada      EVA, PE    Edmonton, AB
Borden Chemical     US          UF, PF     Edmonton, AB
                                           Laval, QC
                                           North Bay, ON
                                           Vancouver, BC
Dow Chemical        US          PE, PS     Sarnia, ON
                                PE         Fort Saskatchewan, AB
DuPont              US          PA         Maitland, ON
Eastman Chemical    US          PET        Toronto, ON
Imperial Oil        US          PE         Sarnia, ON
KoSa                US/Mexico   PET        Milihaven, ON
Montell             Netherlands PP         Varennes, QC
                                           Sarnia, ON
NOVA Chemicals      Canada      PE         Joffre, AB
                                           Corunna, ON
                                           Sarnia, ON
                                PS         Montr[acute{e}]al, QC
                                           Mansonville, QC
Neste               Finland     UF, PF, MF North Bay, ON
                                           Thunder Bay, ON
                                           Kamloops, BC
                                           Sainte-Th[acute{e}]r-
                                           [grave{e}]se, QC
Oxy Vinyls          US          PVC        Sarnia, ON
                                           Fort Saskatchewan, AB
P[acute{e}]tromont  Canada      PE         Montr[acute{e}]al, QC
Reichhold           US          UP         Port Moody, BC
                                           Weston, ON
Royal Group         Canada      PVC        Sarnia, ON

Abbreviations

Polymer abbreviations used in this report are:

PE = polyethylene

PP = polypropylene

PS = polystyrene

PVC = polyvinyl chloride

PA = polyamide

PET = polyethylene terephthalate

ABS = acrylonitrile butadiene styrene

UP = unsaturated polyester

UF = urea formaldehyde

PF = phenol formaldehyde

MF = melamine formaldehyde

EVA = ethylene vinyl acetate

PU = polyurethane

ESI = ethylene styrene interpolymer.

Principal Statistics - Canada's Synthetic

Resin Industry

Establishments -- 105

Employment -- 9000

Shipments -- $6.3 billion

Imports -- $5.0 billion

Exports -- $4.1 billion