November 25, 2011

2011 Leaders

The outlook for construction in Eastern Canada

While a consideration of the nation’s resource wealth usually concentrates on the Western provinces, that doesn’t do justice to the provinces of central Canada and the East. At the forefront are precious and base metals, plus forestry products.

Agricultural products such as corn, canola, wheat and dairy products are also important in many regions, particularly in rural Ontario and Quebec.

Chinese steelmaking demand — not just for building projects such as office buildings and bridges, but also for cars and appliances — is causing a surge in iron ore mining investment in Quebec. Furthermore, the customer base extends to steel producers in Europe and elsewhere who are trying to keep up with the competition for scarce resources.

On the forestry front, Canadian home starts are at a more-than-respectable level. It’s the American market that has been the serious drag. Once U.S. home demand picks up, sawmills and lumber operations will see a revival in export demand.

Lumber prices may move up rapidly, since capacity is now quite constrained. The difficulties of the past several years have seen many plant closures.

As is typical, the overall economic recovery so far has been accompanied by increased advertising levels, which have caused an upturn in activity by pulp and paper producers.

Further with respect to the forestry sector, high electricity charges have been a factor in some plant shutdowns. Northern Ontario and eastern Quebec have been particularly affected. Ontario is struggling with the question of how to add power capacity and keep rates manageable.

Some time ago, Queen’s Park tabled plans for a massive increase in nuclear power generation, but that was sidetracked by issues surrounding the future and ownership of Atomic Energy of Canada Limited (AECL).

AECL has finally been purchased — or more accurately acquired for a nominal sum — by SNC Lavalin. The future of nuclear energy in Ontario will have to wait, however, until the political environment settles down after the recent provincial election. The Liberals were returned with a minority.

The one truly major upcoming electric power initiative in Eastern Canada will be in Labrador. It’s the Gull Island and Muskrat Falls development on the Lower Churchill River.

Besides the government in St. John’s, Nova Scotia’s power authority, Emera Inc., will be a co-sponsor of the project.

Newfoundland also has major offshore oil projects in the wings. Development of the Hebron Field and Hibernia South will involve billions of dollars in investment spending.

The province is in the early stages of earning revenue from Vale SA’s Voisey’s Bay copper and nickel mining operations.

With all these major resource projects, the unemployment rate in Newfoundland and Labrador has dropped by three percentage points year over year.

At 11.9%, Newfoundland’s jobless rate still remains highest in the country, mainly because the fisheries are subject to stock-saving quotas, but optimism about other aspects of the local economy is obvious on The Rock.

St. John’s is also among the leaders nation-wide in creating jobs. Employment in St. John’s in July of this year was 3.9% higher than in the same month of last year.

Nova Scotia is another province with a major resource project that will soon contribute handsomely to the provincial coffers. The Deep Panuke natural gas field between the mainland and Sable Island, owned by Encana, is set to start producing this fall.

New Brunswick is awaiting a return to better times for its resource sector. The province has recorded the nation’s poorest record on housing starts so far this year, -22%, with groundbreakings in Saint John down 55%. That’s the worst percentage change among all census metropolitan areas (CMA).

As for its labour market, Saint John has a much better record. It’s sixth in employment increase (+3.8%) and ninth in terms of low unemployment rate (6.2%).

Quebec’s economy turns largely on electric power projects — mainly hydroelectric but now also wind farm to some extent — as well as aerospace and aluminum projects. Bombardier is fighting to win its share of the pick-up in airplane orders world-wide.

In aluminum markets, Rio Tinto Alcan is planning major refining and smelting capacity expansions in the Saguenay-Lac-Saint-Jean area and elsewhere.

Iron ore projects in the Schefferville region of Quebec and further north will also be a source of intense construction spending in the years ahead.

One of the factors that will be a big influence on the province, of course, will be the next provincial election, slated for 2012. It appeared that Premier Jean Charest’s Liberals were set for a tumble, but then the federal election transpired. The Bloc Quebecois in Ottawa was reduced to “rump” size by the NDP and the provincial branch, the Parti Quebecois, has been on the defensive ever since.

Similar to elsewhere in the county, Ontario is subject to what happens in the resource sector. That particularly holds true in the north of the province. Equipment dealers are ramping up efforts to make sales tied to future mining development north of Thunder Bay in what has come to be named the Ring of Fire.

Ontario also contains the nation’s one true demographic behemoth, Toronto. One third of the population of Canada resides in only three cities — Toronto, Montreal and Vancouver. The CMA populations of Montreal and Vancouver combined are only half a million more than Toronto.

The Queen City is adding more than 100,000 people per year. That has tremendous implications in terms of infrastructure needs. The election of Rob Ford as mayor has shifted the emphasis of economic development. Subway lines have become a particular priority.

Other major transit projects are also proceeding, including a railway line from Union Station — itself undergoing a major renovation — to Pearson Airport and on to Georgetown.

Also, the two Ford brothers (Doug is a councilor and major behind-the-scenes force) are now pushing the idea of private sector development at the Portlands similar to what has helped revive the downtowns of Chicago and other major cities elsewhere in the world.

On a similar note, a giant aquarium, owned by Ripley’s, is about to take shape near the base of the CN Tower.

One of the chief characteristics of Toronto lately has been the high level of housing starts. Furthermore, it has all been concentrated in multiple-unit structures (i.e., condos). Multi-unit starts in Toronto so far this year (i.e., through July) have been +78% versus the same period last year.

The only other city in Canada with a comparable performance in the multi-unit arena has been Vancouver, with a 52% gain year over year. It may not be widely known that Toronto, Montreal and Vancouver usually account for more than 50% of total multi-unit starts in the country.

Alex Carrick, Chief Economist, CanaData.

Provincial Populations

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