Plan on being cost-competitive internationally in 2010: economist

Processors in the Canadian plastics industry need to plan on being cost-competitive internationally with a currency at par with the U.S.

This was just part of what a leading Canadian investment analyst told attendees at the 14^th annual Canadian Plastics Resin Outlook Conference, held in Toronto in October.

“The virtual collapse of the investment banking sector in America, centred in mortgage lending practices for the housing market that went spectacularly wrong, triggered a global credit crunch and deep global recession in 2009 – not to mention a 45 per cent plunge in the overall commodity index,” said Patricia Mohr, an economic and commodity market specialist with The Scotiabank Group in Toronto.

But the good news for 2010, Mohr said, is that a recovery among the G7 nations will take place – and is, in fact, already under way. “The GDP in Germany and France started to rise again in the 2^nd quarter of 2009, and we expect to see a ‘pop’ in U.S. economic activity in the 3^rd quarter and three per cent economic growth in the U.S. in 2010,” she said. “The Canadian economy within the G7 actually held up quite well in 2009; consumer spending and housing market were down, but we have a turnaround beginning soon in Canada, with 2.8 per cent economic growth expected.”

But what does this mean for the price of commodities, including resins? There may be an upward pricing shift for some materials, Mohr said, spurred in large part by a weakening U.S. dollar. “Most commodities are traded in U.S. dollars, making it easier for commodity producers to raise prices in international markets as the U.S. dollar slides down.”

For this reason, Mohr said, the Canadian plastics industry should for prepare to competitive internationally with a currency at par with that of the U.S.

With consumer spending on a slow rise, Mohr highlighted recoveries currently under way in the all-important plastics markets of auto manufacturing and home building. “There will be an upward shift in U.S. motor vehicle assemblies in 2010,” she said. “Inventories are currently very low, partly as a result of the ‘Cash for Clunkers’ program, and this will allow the assemblers to move their schedules forward.” Also, housing starts in the U.S., which plummeted to an abysmal 500,000 units in April 2009, should improve to 700,000 by mid-2010, she said. “Both of these developments are good news for the Canadian plastics industry.”

For video highlights of Mohr’s Resin Conference address, click on this link.