November 25, 2011

2011 Leaders

The outlook for construction in Western Canada

In Canada, two of the major influences on construction in any given region are: 1) population characteristics (e.g., births, deaths, age distribution, in-migration, out-migration, etc.); and 2) availability of raw materials. Western Canada comes up a winner on both these counts.

Over the past several years, whenever Statistics Canada has published its quarterly population estimates, the leader has consistently been one or another of the western provinces.

When Oils Sands construction was in its heyday prior to the recession, Alberta was clearly out front in terms of population growth.

Workers flocked to Fort McMurray, Alta. looking for high-paying jobs so they could send money back to family and friends in Newfoundland or any of several other home provinces.

In the recession, Oil Sands work was cancelled and put on hold and Alberta experienced out-migration. British Columbia and Saskatchewan took over as leaders among the provinces in population gains. Manitoba has also been attracting foreigners.

Immigrant arrivals have done their homework before landing on Canada’s shores. They know where some of the best regional labour markets are located. There is actual resource project site work, plus also spin-off and associated employment.

The 2010 Winter Olympics Games in Vancouver-Whistler were a grand show for the world to witness and a huge advertising coup for B.C. The accommodation sector received a large shot in the arm and there continue to be positive after-effects. The buzz around the takeover bid for Potash Corporation by BHP Billiton focused attention on Saskatchewan and its treasure chest of resources that also includes oil and gas, uranium, diamonds and field crops.

For the last year or so, Regina and Saskatoon have been among the top labour markets in the country. Both cities are currently recording unemployment rates — Regina at 4.9% and Saskatoon at 5.6% — well below the national average (7.2%).

The strength in employment has been a boon to housing starts in the province. Year-to-date foundation-laying in Saskatoon is +42% and in Regina, it’s +31%. That compares with the total Canada figure that is just about even with the same January-to-July period of last year.

Saskatchewan is so diversified in raw materials that a temporary setback in one area is likely to be compensated by ongoing strength in another. For example, the radiation-containment problem that Japan is experiencing as a result of damage to the Fukushima nuclear plant has had a detrimental impact on uranium’s prospects. However, later-model nuclear plants are not thought to have the same design flaws and the global “appetite” for uranium will eventually pick up again.

And commodity demand related to building products for infrastructure projects and consumer goods may be easing somewhat. But the same may not hold true with respect to agricultural products. The world’s food supply is becoming increasingly tight. Hence strong demand for potash and other fertilizers, possessed by Saskatchewan in abundance, is a virtual given. Winnipeg (5.8%) has a jobless rate that is only slightly higher than Saskatoon’s.

Winnipeg has showcase projects that are well under way, such as the Human Rights Museum. However, the big push in the mega project area in the province will come when one, or maybe even two, huge new hydroelectric projects is given the go-ahead.

These are mainly planned along the Nelson River. The Conawapa station has probably been the subject of conjecture the longest, but it may not be the first to go.

Any province that still has hydroelectric potential has a huge competitive advantage for the future. When a clean environment moves to the top of everyone’s priority list, as is currently the case, then non-polluting hydroelectric power has a chance to shine. The one big caveat concerns the massive re-working of the land that may be required to harness and channel the water.

B.C. will need to sort out a major financing issue. The HST (harmonized sales tax) has just been rejected by the electorate in a hotly-contested referendum. The province will likely revert to the previous cumbersome double-sales-tax system (i.e., a separate GST and PST).

B.C. is rich in mining potential — precious metals, base metals and coal.

Even more, it is the leader among Canadian provinces when it comes to <0x000A>forestry products. A resumption of demand from the U.S. homebuilding sector would be a huge help, but the <0x000A>province has learned not to hold its breath on that score. Instead, it has been diversifying its customer base. More lumber is being shipped to China. And rebuilding efforts in Japan have initially called for more plywood from B.C., with demand for other lumber products sure to follow.

The northeastern corner of B.C. is getting set for a mini-boom at the least. The region has natural gas in abundance, although some of it is locked in shale deposits that need new and experimental extraction methods.

Development of Site C on the Peace River will become the source of electricity in the region. Other hydro sites are also under consideration in the province.

The Port of Prince Rupert is a little known gem. Lying a day closer to major Asian ports than Los Angeles, it offers cost advantages to shipping lines that will be increasingly making use of its convenient geography.

There are proposals to ship Oil Sands product from Alberta to B.C.’s west coast for movement by ocean-going tankers to Vietnam, South Korea and China. The highly-engaged environmental movement on the West Coast will undoubtedly put up a formidable fight to stop approvals.

Not far from Prince Rubert is the aluminum complex at Kitimat owned by Rio Tinto Alcan. A major expansion is in the early stages.

Alberta is still the province to watch. The world price of oil may presently lie far below its peak of $144 U.S. dollars per barrel in July 2009, but it has more than doubled versus its trough figure in the recession. As a consequence, Oil Sands operators and investors are back doing business.

Furthermore, the contingent of money-men is carrying more up-front cash from foreign sources than previously, particularly from Asia.

Alberta home starts (-21% year to date) are quite weak at this present time, but they will pick up next year as workers return to the oil patch.

Edmonton and Calgary already rank fairly high among the nation’s urban labour markets. In July 2011, Edmonton (5.3%) was third among all Canadian cities for lowest unemployment rate and Calgary (5.9%) was eighth.

The Canada-wide jobless rate in July was 7.2%.

In the same month, Edmonton was fourth in terms of job creation, at +5.5% year over year. Calgary was closer to the middle of the pack, in thirteenth position among all 33 CMAs, with a year-over-year gain of +2.1%.

That was still higher than the total Canada increase of +2.1%.

Canada West City Labour Market

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