Canada’s Construction Material Costs Tell Diverse Stories (Part 2 of 2)

Article source: CMDGroup

Following up on the subject of Canadian construction material costs, this Economy at a Glance concentrates on seven graphs.

Graph 1: Softwood lumber prices in Canada rose rapidly throughout 2012, but over the past three years, they have stayed mainly flat. The U.S.-Canada softwood lumber agreement (SLA), after being in effect for nine years, was allowed to expire in October of last year.

Participants in Canada wanted to see continuation of the SLA under the same terms as originally negotiated. The U.S. industry has been wishing for a re-calibration of provisions.

Under the SLA, quotas and/or export taxes were to be imposed on Canadian producers when prices fell below a benchmark range.  Individual provinces were allowed to choose their own form of regulation. Additional disputes were argued on several occasions before the London Court of International Arbitration (LCIA).

Without the SLA, as shown by the long history of contentious wrangling prior to its 2006 implementation, there is considerable potential for legal action that will disrupt North American lumber markets.

Graph 2: Waferboard and particle board prices are currently below their starting point in the chart, January 2010. The cost of these products can be kept so low because there are multiple sources of the wood shavings and chips that are compacted and compressed into sheets.

Lower-quality woods will serve the purpose as well as more expensive hardwoods and evergreens.

Graph 3: The ready-mix concrete curve for Canada, just as in the U.S., has marched consistently and steadily upwards, for the most part, over the period from 2011 to the present.

Graph 4: Asphalt prices during the past six years have been notably volatile, with many peaks rapidly turning into numerous troughs. Along with world oil prices, they are currently in a down cycle (-31.8% y/y).

Graph 5: Diesel fuel, used to run machinery and trucks, and to provide portable heating at exposed-to-the-weather construction sites in winter, has also lately experienced a slide back to near its 2010 kick-off point.

On a year-over-year basis, its drop (-22.5%) has been even steeper than for regular gasoline (-15.2%).

Graph 6: Since mid-2011, the cost of gypsum for wallboard in Canada has steadily risen, with a few month-to-month exceptions. Northern Nova Scotia, including Cape Breton, is the most productive gypsum mining region in the land of Mounties and maple syrup.

The U.S., Spain and Mexico are other nations with large open-pit gypsum-mining operations.

Among U.S. states, Oklahoma, Iowa, New Mexico, Nevada, Texas and California are particularly rich in the non-metallic mineral. (That’s in case you’re wondering about Iowa’s other claims to fame besides opening the U.S. presidential-election caucus and primary seasons.)

Graph 7: The precipitous and shocking tailspin in the price of iron ore (-25.5% y/y) has two implications for construction. First, it should serve to beat down the price of steel.

Just as significant, however, it removes the incentive to proceed with large-scale iron ore mining investments, which at one time, were being counted on to provide positive jolts for the economies of some regions in Canada, particularly in northern Quebec.

Before signing off on this latest EAAG, there are some other year-over-year Canadian construction material price movements that deserve mention: glass and glass products (+8.1%); plastic pipe fittings (+11.4%); and most dramatic of all, prefabricated metal buildings (+17.2%).

Tags: Alex Carrick, architect, build, Canada, CMD, CMDGroup, construct, material

Category: CMD Group

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