Happy New Year! The introductory paragraph of the first Newsletter of 2022 could almost be a carbon copy of last year’s – one more pandemic year behind us and a growing optimism on the horizon.
Over the past year, the national inflation rate has increased over 4%. Global steel prices continue to strengthen due to supply constraints and soaring demand. Metal building manufacturers have been plagued with labour and material shortages, supply chain disruptions, and rapidly increasing raw material costs. Surprisingly, steep construction prices have not thwarted record setting demand. Metal building manufacturers are experiencing extended delivery schedules, with many fabrication plants scheduled out to the end of 2022. Full production capacities have led to manufacturers being selective on what projects fill their plants, adding more fuel to pre-engineered building (PEB) prices. It could be well into 2023 before manufacturers can adjust plant capacities, labour shortages and chew through their backlog before we see any relief. Unfortunately, the staggering cost of PEBs is closing the gap on alternate building solutions like pre-cast and conventional structures.
Data
A rebound in global oil and gas demand is once again fueling Alberta’s economy. With oil production reaching a record high in October and strong energy prices, the provincial deficit for 2021 will be less than a third of the provincial spring budget forecast.
The housing market has also been strong with Alberta leading the country in year-to date growth. Employment is slightly above the pre-pandemic rate and it is expected to remain strong over the next few years (TD Economics).
FMI Consulting forecast expects that Canada’s non-residential building construction will expand by 5% in 2022, with most activity occurring in healthcare, education, transportation and communication. The outlook as far out as 2025 looks positive (FMI Q4 Outlook 2021).
Barring any further economic shocks, Alberta is expected to make a full economic recovery by the end of this year. New pipeline capacity, stronger drilling activity and increased energy sector and renewable energy capital investments will fuel this growth.
On the Horizon
Northern Petrochemical’s $2.5 billion investment into a carbon-neutral petrochemical plant, slated for construction in Grande Prairie for early spring of 2023, is expected to add 4,000 construction and construction related jobs and 400 full time jobs once it is operational in 2026.
While there is a lot to be optimistic about, inflation is wreaking havoc on business decisions and capital infrastructure investment. The volatility of construction costs is making it difficult to plan, budget and execute projects. According to Stats Canada, non-residential construction inflation was a surprising 5.4%. When you consider what has happened with the cost of steel over the past year, which makes up 16% of a commercial construction project, that number seems questionable. U.S. Midwest domestic Hot-Rolled Coil Steel (CRU) has increased a whopping 200% year over year. Although the CRU index futures points to some easing, prices will remain far above historical averages for at least most of this year.
The Bank of Canada’s recently adjusted monetary policy framework will focus on price stability along with maximum sustainable employment. The effect of the pandemic on the labour market has been profound, creating an uneven distribution of unemployment across industries, requiring the bank to take a deeper delve into employment characteristics in order to set effective monetary policy. While inflation remains a key target, policy will also target a level of employment that is consistent with price stability. Due to the current slack in the economy, it is unlikely we will see any interest rate adjustments until the latter part of this year.
Looking Forward
Global supply chain bottlenecks, lockdowns and altered consumption patterns, directly influenced by the pandemic, have been the root cause to the high inflation we have experienced over the past year. Backlogs are expected to resolve over the next year with manufacturers increasing capacity, hiring more workers and embracing new technologies. Certainly that will be welcoming news for our industry with better pricing, complete product deliveries and improved building delivery schedules.