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According to CanaData’s starts statistics, private sector money has been tardy in returning to the marketplace so far this year. Through May 2011, commercial construction starts are down 35% in square footage versus the first five months of last year and industrial starts are -24%.
Chief Economist, CanaData
According to CanaData’s starts statistics, private sector money has been tardy in returning to the marketplace so far this year. Through May 2011, commercial construction starts are down 35% in square footage versus the first five months of last year and industrial starts are -24%.
Large drops have also occurred in the two categories that received a boost in 2010 from government stimulus spending — institutional (-55% in square footage year to date) and engineering (-50% in dollar volume) — but this was expected.
Investment in construction by private sector firms is a lagging indicator. The economy has to exhibit a record of improvement over a prolonged period of time for owners to spend money adding office space or expanding production capacity. Well into the recovery, firms’ decision makers get by on what they already have in place.
There are some exceptions to these rules.
When asked where I think the action will be in construction, I almost always point to the engineering category. While the public sector may be stepping back from initiating some kinds of work, the importance of commodities and raw materials to Canada ensures that a number of major projects will be going ahead regardless.
Emerging market demand will be the catalyst and giant international corporations, most often based in other countries, will be the facilitators.
Furthermore, while some infrastructure money may be about to dry up, that doesn’t seem to be the case in all areas of civil work. In particular, there are a great number of transit projects that are still in the proposal stage, made more urgent by recent civic elections, special events (Pan-Am Games in Toronto) or simply a backlog of need.
Assuring supplies of electricity will also take precedence over government desires to cut back on spending and balance their budgets. The industrial base of a province depends on reliable access to relatively cheap power. There is also the matter of what happens to the mood of voters when they see their hydro rates move into the ionosphere.
Therefore, over the next several years, the four categories holding out the most promise for engineering work are energy, electric power, mining and transit.
While we’re at it, let’s also look at a fifth category in which several large projects have been proposed. A standout in commercial construction is recreational buildings — maybe more accurately described as stadiums and arenas — and these are often a combination of public and private sector involvement.
Beginning with energy projects, these are well spaced across the country. Starting on the East Coast, there are two offshore oil projects in the Jeanne d’Arc Basin east of Newfoundland and Labrador.
Hebron is a $10 billion project expected to produce 150,000 to 170,000 barrels of oil per day when it is eventually commissioned. Chevron, Suncor and Exxon Mobil are the principals. There is also the Hibernia South extension project, owned by Exxon Mobil, in the negotiated/working drawings stage.
Skipping across the nation to Alberta, there is a wealth of ongoing and contemplated projects in the Oil Sands, primarily near Wood Buffalo. The latter is the regional district which includes Fort McMurray. Some of the best-known “names” are Suncor’s Voyageur heavy oil project, the Joslyn north mine project for Total E&P and the Firebag 4 and Christina Lake SAGD (steam-assisted gravity drainage) projects.
Rounding out the energy sub-category are competing pipeline proposals to carry Alberta oil to the B.C. Coast — Enbridge versus Kinder Morgan Canada — and all the natural gas drilling and related work that would be associated with a Mackenzie Valley Pipeline from the Northwest Territories south to Alberta.
Newfoundland will also be big in electric power work, with its Gull Island and Muskrat Falls stations on the Lower Churchill River. Manitoba and British Columbia are also in the spotlight when it comes to hydroelectricity. The former has plans for both a Keyask station and a Conawapa station on the Nelson River. British Columbia is studying Ruskin Dam (Stave River) and Site C (Peace River) investment plans.
There is also the clean-coal, electric-power showcase proposal at the Boundary Dam near Estevan Saskatchewan, with a carbon capture and storage component, and several major wind farm proposals in a couple of the provinces.
In transit projects, Toronto has its Eglinton subway line and Mayor Ford’s dreams of a Sheppard East route as well. The latter was an election promise. Other municipalities are planning to hop on the rapid transit bandwagon, including the Region of Waterloo, Ottawa and Victoria. In Vancouver, there are plans for both UBC (12 kilometres) and Evergreen (11 kilometres) rapid transit lines. Each is valued at several billion dollars.
The mining category of construction work is a treasure chest. New Millennium Capital Corp. has a massive ($3.5 billion estimate) iron ore project in the negotiated planning stage in Schefferville, Quebec. More iron ore projects to meet steelmaking demands in Europe and China are on the books in the extreme north of the province.
Brazil’s Vale S.A. intends to spend on facilities in Sudbury and in connection with its Voisey’s Bay operations in Newfoundland and Labrador. It also has the Milestone potash property in Saskatchewan for future development.
Several major precious metal projects likely will be receiving go-aheads including the Snow Lake gold and zinc mine for HudBay Minerals in Manitoba and the Schaft Creek gold-silver-copper-moybdenum mine in northwestern B.C. It also seems all but inevitable that there will be major aluminum smelter expansions in Quebec and B.C.
And diamond mines are back in the news. Both De Beers and BHP Billiton have expansion plans in the Northwest Territories. The former plans to proceed with its Gahcho Kue site. The latter has an open pit project saddled with the rather ominous name Misery at its Ekati mine.
Finally, in recreation projects there are proposals for a new hockey arena in Quebec City, renovations to Ivor Wynne stadium in Hamilton (to accommodate soccer at the Pan-Am Games) and a new domed football stadium in Regina.
The base planning is in place for strong construction activity a little removed from the present. It’s the journey along the time line from here to there that might have its share of pitfalls and require some fortitude.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com
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