Canada: After A So-So 2012, Chemical Firms Prepare For A Brighter Future

The surge in U.S. chemical industry capital spending resulting from an abundance of shale gas is well-known, but, more quietly, America’s neighbor to the north is also experiencing sizable chemical investments.

The investment is coming despite mixed performance last year for Canadian industrial chemical producers, which together generated revenues of $24.3 billion, a 2.7% decline from 2011, according to the Chemistry Industry Association of Canada. Prices declined about the same amount, and sales volume remained flat. “It was a holding pattern kind of a year,” says John Margeson, CIAC’s manager of business and economics. Profits didn’t hold: They dropped 21% from 2011 levels to $2.7 billion.

Member companies surveyed by CIAC expect more of the same in 2013. Revenues will again be down slightly, they predict, and volumes won’t increase, though they only expect a 3% decline in profits. Margeson, however, suspects members may be overly pessimistic. “I think they’re hedging their bets a bit with some uncertainty about what will happen in the U.S. with the fiscal cliff and also some uncertainty as to whether Europe will find some way to get itself out of its recession,” he says.

Companies are spending money on new projects, however. Producers expect capital spending to increase 61% in 2013, to $2.7 billion. For example, Nova Chemicals will start bringing raw material ethane from the U.S. to its ethylene cracker in Sarnia, Ontario, next year. As part of the project, the company is converting equipment at the site so it can process the ethane instead of naphtha, its traditional feedstock.

Nova isn’t alone in investing in Canada. Williams Cos. is planning a propane dehydrogenation plant in Alberta that could lead to investment in downstream propylene derivatives.

And not all the money spent in Canada is from the petrochemical sector. Cytec Industries is doubling phosphine capacity in Welland, Ontario. Canexus is expanding hydrochloric acid in North Vancouver, British Columbia, and BioAmber is building a biobased succinic acid facility in Sarnia.

With all the planned projects in Canada and beyond, Nova CEO Randy G. Woelfel is worried that the chemical industry is taking on too much. “One clear challenge that we, and all industry players who are investing for growth, are facing is substantial and increasing pressure on project costs,” he told analysts in November.