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The North America Chemicals Sectors : A Company and Industry Analysis (December 2007)
Mergent, Dec 2007, Pages: 32
This report updates the previous North American chemicals report, focusing on the markets in Canada and the United States
Current Environment - Key Points
- US chemical companies fought rising oil prices during the year, with the effects particularly notable for feedstock and energy costs. Most companies managed to pass the costs down the product chain, however. - The shares of leading companies in North America performed well due to favorable growth in production and sales, especially for ethylene
- First half 2007 results were strong compared with those of the moderately weak first half of 2006
- Consolidation progressed at a steady pace in 2007, with future deals to be driven by high hydrocarbon prices, fast-growing emerging markets and cash surpluses
- Cost pressures from high raw material and energy prices, combined with the strength of the Canadian dollar against its US counterpart, continued to affect Canadian companies negatively in 2006 and into 2007 - resulting in lower profits
- Plant closures put a dampener on the Canadian chemical industry in 2006 and into 2007. These had drastic effects on employment levels by year-s end
- In a move of great significance to both the US and Canada, effective December 1, the EU banned 22 chemicals that may increase the risk of cancer still found in cosmetics in Canada, after the Canadian cosmetics industry failed to provide any safety data on the substances
Industry Profile - Key Points
- The US chemical industry is the largest in the world, accounting for more than 26% of global chemical production
- US producers have not always been able to pass on price increases to customers. They have tended to try to preserve and enhance profits by spending on projects intended to strengthen their competitive position. - Many big US chemical consuming businesses feel sandbagged by a series of EU environmental regulations
- In its 2007 budget, the Canadian Federal Government provided tax relief to the manufacturing sector through modified capital cost allowances on new investments. According to Canada-s Chemical Producers- Association (CCPA), the new tax measures will help the chemical industry and encourage investment and job creation
Market Trends and Outlook - Key Points
- Industrial employers are increasingly looking for chemists with skills in synthetic organic chemistry, polymer chemistry, materials science, biochemistry, and analytical chemistry
- As emerging markets in the Middle East continue to grow at a faster pace than the developed markets of the US, more end-use industries are shifting their production overseas to take advantage of low feedstock costs
- For 2008, the American Chemistry Council (ACC) forecasts that US GDP will rise 3.3%, up from an estimated 2.6% in 2007. However, it sees growth in chemical production dropping to 2.5% in 2008, from 3.2% in 2007
- The weaker US economy is affecting Canadian chemical industries in several ways. While struggling to adjust to the higher value of the Canadian dollar, chemical producers also have to cope with weaker demand from their largest market
- The Canadian chemical manufacturing sector is a C$40 billion (US$39.22 billion) industry with diverse activities, and is making wider use of nanotechnology. - The significant strengthening of the Canadian dollar against its US counterpart should have less an effect on company earnings in the next few quarters than it did in 2007.
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