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Report upbeat on construction sector, despite several challenges

August 30, 2023  By Don Horne

Steel rebar, cement costs remain sizable factors in Canada’s economic forecast

A new report is shining a positive light for the industrial construction industry in Canada, but notes that risks remain with ongoing inflation, high interest rates, and labour shortages.

The Q2 Canadian Country Commodity Report, from global construction consultant Linesight, describes “encouraging growth” as Canada’s Real GDP exceeded expectations and job growth continued in Q1 2023.

“While a decline in the residential sector contributed to a contraction in the construction industry, the industrial sector is poised for growth,” the report states. “The Canadian government’s commitment to establish Canada as an industrial hub and investment in EVs, green hydrogen, metals and materials processing will help drive growth in the energy and high-tech industrial sectors.”

“The signs are promising for the Canadian economy overall, but the construction industry faces lingering challenges,” added Patrick Ryan, executive vice president for the Americas at Linesight. “Labour shortages – due to growing demand for healthcare, infrastructure, data centres, and life sciences – are still impacting project delivery and budget. Multiple sectors are expanding in Canada, all of which will put increasing demand on materials.

“For example, we’re seeing two major gigafactories going up in Southern Ontario soon, and the government’s investments in healthcare, life sciences, and infrastructure will all be materials intensive.”

The data in the report suggests:

  • The construction industry is expected to shrink by 5.2 per cent in 2023 as the residential sector has declined more than expected. Regardless, construction is likely to grow by 2.7 per cent between 2025 and 2027 thanks to investment in the industrial, energy, and transportation sectors;
  • Lumber prices are stable this year after two years of high volatility. Prices picked up due to the wildfires in June of 2023. Though prices may appreciate slightly in the coming months, the trend in coming quarters looks to be one of weakness due to the housing downturn;
  • Copper prices have dropped 5.5 per cent in Q2 2023 and stabilized but are likely to be volatile for the next two quarters, influenced by high interest rates and weakening residential construction on one side, and investment in electric vehicles and renewable energy on the other;
  • Steel rebar prices are down from 2022 highs and likely to continue edging downwards in the months to come. Demand for steel will be driven by significant infrastructure investment, with upward pressure limited thanks to cheaper steel imports and easing production costs; and
  • Cement costs have continued to increase due to stricter environmental regulations but will likely drop in the coming quarters. Prices are rising at a slower pace than before and an awaited drop in production costs and construction output may help prices decline.

Looking to the report’s outline of sector-specific trends, the data centre sector in Canada has experienced what the report calls “remarkable growth,” driven by increasing demand for cloud computing, IoT favourable climatic conditions, and a low risk profile. Currently, there are numerous data centre projects in the pipeline, totaling a value of over US$7.4 billion, with a significant concentration in the Ontario and Quebec regions.

Despite economic challenges, the industrial construction sector has shown positive trends in investments and building permits since the start of 2023, the report says, and is projected to achieve a growth rate of 15.5 per cent in 2023. The sector’s output will be bolstered by investments in Electric Vehicle (EV) markets and the government’s ambition to establish the country as an industrial hub.

To request the full report, please click here.

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