Last Saturday, about 80 people showed up at the Seaside Centre for a public meeting concerning the impact of the rising Canadian dollar and whether the impact on the average person will be as bad as some people fear.
Coping with the High Canadian Dollar was hosted and moderated by John Weston, federal Conservative candidate, with presentations from Michael Walker, president of Fraser Institute Foundation and former Fraser Institute director, and Howe Sound Pulp and Paper (HSPP) general manager Fred Fominoff, followed by an open question and answer period.
Fominoff gave a brief presentation on what HSPP produces: 362,800 tonnes of NBSK pulp paper annually and 208,000 tonnes of newsprint annually. The mill, which was modernized in 1998, is probably one of the most modern and efficient mills right now and currently has about three per cent of the world's market, located mostly in the Asian market, he said.Fominoff said HSPP operates in commodity markets and products are priced in U.S. dollars. But their costs are in Canadian dollars, and that reduces revenue and earnings. According to Fominoff, HSPP has taken a considerable financial hit with the high Canadian loonie (roughly a $40 million loss) and increasingly lower newsprint sales to the U.S. market (the downside of electronic media). He said HSPP will weather the changes and stay viable and competitive in the market.
Walker gave a historical overview of the Canadian dollar's fluctuations, discussed its current strength, reviewed whether the Canadian dollar can maintain its near parity to the U.S. dollar and talked about the possible short and long term impacts of a strong dollar and what would happen if it fell suddenly (which he doesn't see happening soon). Walker said he gets asked a lot if the Canadian dollar is going to stay where it is, or will the situation end up reversing itself with the dollar dropping sharply. He said many people he's come across hold to the view that when it dips, the Canadian dollar will practically bottom out.
Based on the Bank of Canada's forecast, which Walker calls "a good guide to what will happen," the bank's prediction is that inflation will be lower than their target range. Walker doesn't believe the high Canadian dollar is going to make much of a difference on the Canadian economy when looked at over all areas from export to manufacturing to services and sales. He said consumer spending will be stronger, but net exports will be weaker because of the stronger imports. Walker said consumers will use purchasing power to shop abroad and/or bargain with Canadian suppliers and they will be able to get cheaper financing.
The first few questions from the audience centred on HSPP. Audience members wanted to know if technology was reducing newsprint output, whether the coal burning trials would resume and the long-term viability of the mill.
Fominoff said U.S. newsprint consumption was down because of a decrease in newspapers' circulation base and size of publications and has been declining at a rate of a about six per cent per year. However, on the other side, he said HSPP had growing newsprint markets in other parts of the world.
The coal burning trial was stopped because of the opposition to the project, but he believes there will be a chance to restart it sometime in the near future. As far as the company's recent financial problems, he said HSPP's recent credit protection and restructuring process gives him every confidence that HSPP will continue to be a sound company. He said this was due in part to the modernity of the equipment and the plant itself, which means its effectiveness will remain high while other less viable and much older mills close down.
