2013-08-20 09:03:15 - New Construction market report from Business Monitor International: "Canada Infrastructure Report Q3 2013"
We have marginally downgraded our near term outlook for Canada's construction industry, with 3.9% real growth now expected in 2013 (versus 4.1% last quarter) as a result of below trend Q1 2013 data. However, we are maintaining a relatively high rate of growth, as we believe the slowdown in the real estate market will be gradual and uneven, and that there are a substantial number of high-value infrastructure projects which should support the overall sector. Our biggest risk comes from threats to natural resource-related infrastructure, both regulatory and demand risk in oil and gas and mining. Below trend construction industry data has prompted us to downgrade our 2013 forecast for industry growth, however, we are maintaining our view that Canada
will be one of the best performing developed markets over the near term. Growth will be supported by high-value infrastructure projects across the transport and energy sectors, as well as social infrastructure, industrial projects, and a housing market that seems to be defying measures put in place to bring about a slowdown.
Full Report Details at
- www.fastmr.com/prod/670551_canada_infrastructure_report_q3_2013. ..
The greatest risks to our outlook come from a sharper-than-expected decline in the housing sector, as well as slowing demand and falling prices in the commodity sector, which are forcing developers to stall new capital investment, thereby impacting supporting infrastructure and industrial projects. We also note the growing detrimental impact of the regulatory environment on natural resource-related infrastructure. The rejection of the CAD5.5bn Northern Gateway pipeline sets a poor precedent for other similar projects; whilst the objections to plans to expand coal export capacity is a concern for investment taking place into expanding coal production.
Infrastructure Foundation For Growth
Infrastructure remains a fundamental element of Canada's construction industry growth, with a project pipeline in excess of US$120bn. Whilst we envisage below-trend growth in 2013 and 2014, there is significant upside to our view if projects are able to bypass regulatory red tape quickly.
One of the strongest sub-sectors over our 10-year forecast period to 2022 will be railways, where a project pipeline worth US$36bn will drive annual average industry value real growth of 4.5% between 2013 and 2022. This growth will be driven primarily by urban rail projects, including the CAD8.2bn Eglinton Crosstown Light Rail Transit project, the US$2.6bn Toronto Subway Spadina line expansion, the US$2.1bn Ottawa Light Rail project and the US$1.8bn Edmonton Light Rail project.
The biggest upside potential to our forecast is from freight rail projects, however, with the CAD5bn Cote Nord rail project in Quebec temporarily suspended in February 2013 due to weak demand, we have seen verification for our decision to withhold these projects from our forecast. In November 2012, a CAD8.6bn railway project to transport crude from Alberta's oil sands to Alaska moved forward. The project has support from First Nations groups and is seeking financing to produce a feasibility study.
The other booming sector is electricity, where we see US$36bn worth of projects under way or in the planning stages. Huge generating stations are under construction, including the US$6.2bn Lower Churchill Hydropower Project, the US$2.6bn Lower Mattagami Hydropower Project, the 918MW Eastmain-1-A/ Sarcelle/Rupert Project, as well as extensive transmission line projects, including the 1,380km US$3.3bn Bipole III transmission line and the US$1.6bn Eastern Alberta and US$1.4bn Western Alberta transmission lines. Wind power projects are also being developed across the country, although regulatory uncertainty weighed on 2012 projects, 2013 is expected to be a record year for new installations, which presents upside to our 2013 forecast for the sector. Overall, we are forecasting 4.7% average real growth per year between 2013 and 2022 for the power plants & transmission grids sub-sector.
We also see strong upside for the overall energy & utilities sector from oil & gas pipelines. We have registered US$20bn worth of pipelines in the planning phase, which would provide a significant boost to industry value creation if they all progress. We are pricing in a minimal realisation of pipelines over the medium term, based on the complex regulatory procedures for the projects. Indeed, with the rejection of the CAD5.5bn Northern Gateway pipeline in June 2013, we have marginally downgraded our near-term forecast, and pushed back the start of a pick-up in sector growth to 2014. As it stands, we are anticipating annual average growth of 3.7% in the oil & gas pipelines sub-sector between 2013 and 2022.
Residential & Non-Residential Balance Out
One of the strongest sources of growth over recent years has been residential construction as the industry experiences a boom. However, growth slowed over the second half of 2012 and into 2013 as a result of government plans to slow mortgage growth, supporting our previously-held view that there would be a gradual deceleration in the industry. However, the impact of these measures will ease off on growth over the second half of the year, and therefore we expect the sector to contribute positively to growth over 2013.
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