With a mission to inform, empower, celebrate and advocate for British Columbia's current and aspiring business leaders, BCBusiness go behind the headlines and bring readers face to face with the key issues and people driving business in B.C.
Issue link: http://digital.canadawide.com/i/526329
istock 108 BCBusiness july 2015 sourcing technology, machine parts and services from outside of Canada more and more—and exchange rate volatility is affecting these companies at a deeper level. For manufacturers, a low dollar can make it easier to sell abroad—but, increas- ingly, it can also mean higher production costs and smaller margins. "Industries reliant on U.S. markets and suppliers have less capacity to respond to exchange rate movements and are potentially at financial risk," explains Valérie Poulin, an economist at the Conference Board of Canada. But fundamentally, a globalized sup- ply chain—where a manufacturer pays for parts from China in USD—is good for productivity, says Poulin. Companies just need to figure out how to manage the currency-induced f luctuation in those prices. And nowhere is up-and-down volatil- ity more pronounced than in commodi- ties. Lumber, copper, gold: all are sold in USD. Export contracts are universally denominated in USD—regardless of the destination—and nearly every financial, from a futures contract to a 10-year term bond, is denominated in USD. Catalyst Paper, based in Richmond, exports nearly 40 per cent of its bleached pulp—the material from which cardboard and kraft paper are made—to the U.S. All of its pulp, however—be it for domestic or export markets—is sold in USD. In order to lessen the impact of currency f luctuations on its bot- tom line, Catalyst hedges. By locking in its contracts with buyers at specified exchange rates (for 2014, it hedged the dollar would stay at around 90 cents), Catalyst attempts to lessen the impact that a swing in the dollar would have on its income. It thus avoids having a $5-million contract turn into a $4-million payment. On the flip side, Catalyst could miss out on addi- tional profits were the loonie to rebound. Still, Catalyst prefers its better-safe- than-sorry approach. While those pre-set prices are important for sales, they're even more important for manag- ing debt, explains Poulin. Like all major bond issuers, Catalyst deals with debt denominated in USD. A low Canadian dollar makes servicing those debts more expensive. In a note to investors in the final quarter of 2014, the company warned that its earnings could "fluctuate materially" as a result of a loss in convert- ing those payments into the more expen- sive American dollar—enough to turn a marginal profit into a loss. ■ nowhere is up-and- down volatility more pronounced than in commodities. Lumber, copper, gold: all are sold in USD. export contracts are univer- sally denominated in USD–regardless of the destination the Top 1oo The Ups and Downs of Canada's Loonie as the u.s. recovers from stagflation and an oil shortage thanks in part to alberta, the dollar hits a high of us$1.04 high commodity prices help lift the loonie to us$1.04 as canada's economy feels the recession, so does our dollar, falling to a low of us$0.79 1974 2007 2011 1986 2002 2009 2015 as the price of oil bottoms out, the loonie does too and falls to a record low of us$0.69 an already low loonie feels the impact of 9/11, which has markets roiling, reaching a new all-time low of us$0.62 as oil continues its descent, the loonie falls in march to a low of us$0.79 the economy is in recovery, and oil prices are high. the loonie hits an all-time high of us$1.05 F S