Canada’s lower dollar should boost manufacturing and exporting. But as the dollar dances around the $0.70 mark, it’s a mix of pros and cons for Lower Mainland manufacturing companies.
For Columbia Plastics, a Burnaby-based moulded plastics manufacturer, the widening exchange rate has increased the cost of buying plastic pellets from the United States and elsewhere, because all transactions are done in American dollars.
But it’s made the company’s products more attractive to international buyers as well as to Canadian customers, who are looking for local suppliers as imported products have become more expensive. All in all, the low dollar has been a win for the company, which mostly competes with American companies.
“It makes us more internationally competitive,” said Brian Holmes, vice-president and general manager of Columbia Plastics. “The value-add that we do in Canada just went on sale for the rest of the world.”
It’s a different story for Marcon Metalfab, a company that makes custom steel and rubber parts for large infrastructure projects like bridges. The price of steel hasn’t gone up because the company buys from local suppliers who source from China, but the company has no choice but to purchase rubber from the United States.
“We’re taking a bit of a hit there,” said Jen Nguyen, Marcon’s chief financial officer.
Aiming to continue the rapid growth it has achieved over the past few years, the company bought two large pieces of high-tech equipment from the U.S. The cost of buying and making payments on that equipment has increased 12% in the past three months alone.
Marcon wants to work on American government-funded infrastructure projects but can’t because of that country’s Buy America rules for steel; a plan to buy an American company to be eligible to bid on those projects is now on hold because of the currency situation.
While a low dollar is expected to benefit exporters, the volatility of the exchange rate isn’t welcome, said Marcus Ewert-Johns, B.C. vice-president of Canadian Manufacturers & Exporters (CME). The sweet spot for the Canadian dollar ranges between the mid-70s to low 90s, according to economists.
The Canadian dollar has fallen in response to the price of oil; since the beginning of the year, oil has plunged further with no expectation of a rebound as the commodity continues to be oversupplied.
While the Bank of Canada decided last week to maintain its key lending rate at 0.5%, the CME was concerned a further rate cut would have pushed the dollar even lower and undermined consumer confidence.
“Most Canadian firms are buying inputs from abroad and having to buy those inputs in Canadian dollars,” Ewert-Johns said. “So the lower the dollar goes, the more expensive it becomes for the business to buy its materials.
“[For example] you’ve got a booming wine industry here, but everybody buys their bottles from Mexico and China. There’s no glass-bottle manufacturing facility in Canada.”
Ewert-Johns added that the low dollar should stimulate the local economy, as businesses look to localize their supply chain by buying from other Canadian companies.
Businesses can also lower their exposure to volatility by hedging U.S. dollars, which most companies do through their bank or credit union.
Marcon Metalfab views the currency fluctuation as a short-term problem. Long-term, the company is expecting that the federal government’s promise to boost infrastructure will translate to more projects for the company.
@jenstden
