Canada ethylene output dips on shrinking sources, strong currency

Petro Chemical  |  2011-01-27 09:11:59   |   By

Gas field depletion and reductions of gas throughput in export pipelines to the US, which ethane extractors rely on to produce petrochemicals feedstock, is reducing operational capacity of Canada world's most low-cost and efficient petrochemicals producers.

OTTAWA (Scrap Monster): Canadian ethylene production is being undermined by the strong Canadian dollar and declining ethane extraction from traditional sources in Alberta, according to Business Monitor International’s (BMI) Canada Petrochemicals Report. 

Gas field depletion and reductions of gas throughput in export pipelines to the US, which ethane extractors rely on to produce petrochemicals feedstock, is reducing operational capacity of Canada world’s most low-cost and efficient petrochemicals producers, the report states. 

BMI therefore believes that feedstock source diversification will be essential to sustaining the recovery in petrochemicals over the long-term and could even support new petrochemicals capacity.

The momentum of export growth to the US is likely to slow in 2011, a situation not helped by the strength of the Canadian dollar against the US dollar, protectionism by the US government and uncertainties facing the Canadian manufacturing sector. 

However, BMI is optimistic about the prospects of the petrochemicals industry in 2011, although growth levels are likely to be lower as the industry was already close to full capacity by the end of 2010. 

Domestic sales will lead growth, rising by a forecast 5.5% in value. We are forecasting a slowdown in private consumption growth from 3.3% in 2010 to 2.4% in 2011, in line with our global outlook. However, this would still put the Canadian economy at the top among major developed states. 

On the downside, in Canada federal government stimulus spending is scheduled to stop in early 2011, and this may affect industries supplying materials for infrastructure spending. Nevertheless, Canada’s construction industry appears to be over the worst of the economic downturn and BMI forecasts consistently strong growth over the mid-term period that should stimulate PVC consumption. 

Meanwhile, exports to the US are forecast to rise by 1.5% due to slower growth in the US economy while total exports are unlikely to change much over 2010 with a decline of up to 4.0% in exports to non-US markets as Canadian producers struggle to compete with Chinese and Middle Eastern output.