Petrochemical manufacturing industry in Canada exhibited volatile growth over past 5 years

The Petrochemical Manufacturing industry exhibited volatile growth over the past five years. According to IBISWorld analyst Radia Amari, “During the recession, demand from the manufacturing sector deteriorated and remained persistently low.” On the other hand, downstream customers like the plastic and resin manufacturing industry recovered quickly after the recession, stimulating demand for this industry's products. A weakened dollar also fueled export growth over the past five years. In the five years to 2013, IBISWorld expects revenue to increase at an average annual rate of 2.4% to $9.7 billion. In 2013, revenue is expected to grow 9.4% as the economy recovers. Profit margins (i.e. earnings before interest and tax) are slim for the average operator. “The high and rising price of crude oil, which represents a key input in most industry products, has cut into industry profitability over the past five years. Coupled with intense competition, this scenario makes for a tough operating environment,” says Amari. Industry participants face external competition from imports. Imports satisfy about 11.2% of the domestic demand for petrochemicals. As the Canadian dollar has appreciated, gaining strength against its trading partners' currencies, foreign-made goods have become relatively cheaper domestically. In 2010, the Canadian dollar gained significant strength over the US dollar, causing imports to jump. IBISWorld anticipates this trend will continue over the next five years as the domestic currency continues its upward trend. Imports are expected to increase at an estimated annualized rate of 3.3% over the five years to 2018. The Petrochemical Manufacturing industry has a low level of market share concentration. In 2013, the top four players account for less than an estimated 10.0% of industry revenue. In addition, the majority, or about 83.4%, of industry companies employ less than 100 people, although industry concentration has gradually increased. The departure of smaller players that cannot adapt to the changing operating environment brought on by the recession has aided this concentration process. Over the five years to 2013, the number of industry companies has declined at an estimated annualized rate of 1.6% to 12. Over the next five years, this industry will expand, led by improving operating conditions. Revenue is projected to grow. Unlike the previous five years, revenue growth will be more stable. Demand from key buying industries will remain relatively constant, as will raw-material costs, which will cause revenue to stabilize. That said, increasing regulation could hinder the industry by increasing operating costs. To offset rising costs, industry companies could likely raise prices. Some firms are expected to offshore production to mitigate costs; others will find it difficult to wind down capacity, choosing to sell off establishments too costly to continue operating. Over the five years to 2018, the number of establishments is expected to remain flat at 22.