This is a post from Alex Carrick's blog that covers the Canadian construction industry.

Since 1985, Mr. Carrick has held the position of Canadian Chief Economist with Reed Construction Data's CanaData, the leading supplier of statistics and forecasting information for the Canadian construction industry.

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Construction Industry Forecasts

Notes from Alex Carrick - Jun 16, 2009

Alex Carrick
Canada’s Merchandise Trade, Key Export Markets and Construction Opportunities

Canada’s merchandise trade position fell into deficit again in April 2009. This was the third month of deficit in the last six months of awesomely weak trade numbers. Canada usually runs an annualized trade surplus of around $50 billion. It is no coincidence that the recession is coinciding with the nation’s poor performance on the trade front.

The U.S. has been experiencing a similar drop-off in exports and imports. The difference versus Canada is that there are some positive side effects for the U.S. economy. The U.S. trade deficit in goods and services had grown to an alarming -$700 USD billion from mid-2005 through late 2008. The deficit dropped down to -$300 USD billion in February and then moved up slightly in March and April. This has taken some selling pressure off the U.S. dollar, although it is still being tested by moments of weakness for other reasons.

Oil Exports and Mega Project Reinstatements

What is needed for Canada to see an improvement in its trade position? First and foremost would be a gain in commodity exports, both in terms of volume and price. There are indications that this may be in the works. The price of oil has risen from $35 USD per barrel in February to a current level of $70 USD. The number of barrels exported is not really up yet, however, because the U.S. economy remains so weak.

Canada’s oil exports are all to the U.S. There is an interesting construction proposal – Enbridge’s Northern Gateway Pipeline Project − to ship oil to the coast of British Columbia, with intended markets in East Asia. Also, with the increase in the price of oil, companies in Alberta and Newfoundland are committing to mega energy projects again.

Natural Gas Exports, Prices and New Recovery Technologies

Natural gas export sales are depressed due to both the recession and low prices. The latter have fallen well below their historical relationship with oil. On an energy-equivalent basis, natural gas in millions of British thermal units is usually priced at one-sixth the level of oil prices. The current relationship is nowhere near that factor. Instead, it is about one-twentieth the price. Usage of gas is down both in industry and in power generation. It has also moved into abundant supply due to new fields that have been opened up in shale deposits, thanks to the emergence of new high-tech horizontal drilling techniques.

Lumber Exports and U.S. Housing Markets

Forestry exports, at least with respect to lumber, are driven by U.S. homebuilding markets. U.S. housing starts for May have just been published. They show an increase from 454,000 units annualized in April to 532,000 units in the latest month. Regionally, the largest gains are in the South and the West. Bargain prices are starting to have an impact on demand. Bank-owned properties, as a result of foreclosures, are finding buyers through heavy sales promotions and real estate-sponsored trade fares and bus tours.

Base Metal Exports – The China Effect

Base metal exports are a function of a wider global economy. The Chinese dragon appears to be breathing sparks, if not fire, again. Industrial output is up and the nation is importing raw materials. China is seeing an opportunity to stockpile key resources while prices remain low. This may not last long. The recession is somewhat self-correcting for resource producers. The fact that many prices have fallen so low has not only curtailed production, but has resulted in a postponement of investment. Therefore, the supply-demand balance has become more precarious. Base metal prices are already moving up to some minor degree. Eventually, this can only be positive for Canada’s mining sector.

Autos and Aerospace

As for manufacturing exports, Canadian producers are fighting a valiant but uphill battle. Greater stability is emerging in the auto sector, but uncertainty will continue to flare up due to new fuel efficiency standards in the United States. Can Americans be sold on the idea of buying smaller cars? Canada has a particular stake in this question through Magna’s takeover of Opel and Ottawa and Ontario investments in GM and Chrysler. In the aerospace industry, the Paris Air Show will give one key indication of Bombardier’s chances of success for its new C-Series class of intermediate-sized jets.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.


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