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North America

North America Construction CostsThe 2nd half of 2017 should be good for oil & infrastructure related construction in the USA.  The forecast for 2017 GDP growth for the US is 2.3%.  $150 to $300 million of Federal Construction (bridges, roads etc.,) is forecast to be approved by July or August.  Construction growth in the USA & Canada will be propelled by the improving economy & increased government expenditures on public related infrastructure programs.

Additional specifics are starting to materialize about President Trump’s Infrastructure Plan,  $150 to $300 million of Federal Construction (bridges, roads etc.,) is forecast to be approved by July or August.

US construction labor costs are increasing by 1.9% to 2.3% per year. Generally US construction bulk materials are increasing between 4.8% & 5.8%, up considerably from a year back.  Cement is forecasted to increase from 1.6% to 1.8%, structural steel is set to increase by 2.9% to 3.5%, PVC pipe are set to increase by 0.5% to 0.7%, timber / lumber products are forecast to increase by 6.8% to 7.7% in 2017 from 2016 pricing levels.  Copper pipe / products are “spiking”, increasing between 10% & 15% from 2016 pricing levels.

Construction activity overall in the US is forecast to increase by 3% to 4% in 2017 over 2016 levels.  New U.S. single-family homes are forecast to have a decent 2017 increasing by 7% to 10% over 2016 activity.  Industrial construction such as refineries, gas facilities, chemical & power plants are forecast to see steady growth in the 2% to 4% range in 2017 over 2016 levels.  President Trump is proposing a ten year $1 trillion plan to fund new infrastructure (highways, airports, bridges, tunnels & the like).

The construction of XL / Keystone Pipeline linking Alberta Oil Sands in Western Canada – with the US Gulf coast refineries, is forecast to create 20,000 to 40,000 construction related jobs.  Current estimates are that U.S. oil production could jump by as much as 500,000 to 1,000,000 barrels a day if President Trump’s agenda is enacted.

President Trump’s administration is expected to push ahead with additional Oil & Gas exploration & drilling on US federal lands in western states such as New Mexico, Arizona & Colorado.  All of this translates to greater Engineering & Construction / CAPEX activity in the U.S. in 2017 & beyond.  On the other hand increased U.S .Oil & Gas production will mean less imported oil from countries such as Venezuela, Nigeria & Saudi Arabia – these countries may be forced to discount their prices, it is not unrealistic to see oil trading in the $35 to $45 a barrel range in mid-2017.

The US commercial construction sector (Offices, Hotels, Single Family Homes etc.) will experience a steady improvement in the 2st half of 2017 as consumer confidence continues to improve.

Home builders are forecasting a 5% to 8% increase in new home sales from 2016 levels.  The forecast for new home sales is in the 750,000 to 850,000 units for 2017, up significantly from a couple of years back.

Pipe fabrication costs are forecast to increase by 1.8% to 2.5% over 2016 pricing levels due to the significant ongoing work on the multibillion dollar CAPEX projects currently being executed on the US Gulf Coast.  Drywall, Plywood, framing timber & drywall costs are increasing year to year by 2.5% to 5.5%, due to improvement in the US “new” housing market.  However, steel products such rebar & structural shapes still remains depressed – look for structural steel / pipeline products to start increasing again by 1.5% to 2.5% in the 2nd half of 2017.

The Sabine Pass / Golden Pass LNG Facility in Texas, (a $7 billion project) has been approved to proceed, the EPC effort would create about 7,500 to 10,000 direct & indirect jobs.  A final investment decision is expected to be made by the end of 2017.  Commercial construction offices, hotels, shopping malls & similar facilities are forecast to grow by 3.5% to 5.5% in 2017 over 2016 levels.  Infrastructure, transportation & water supply / disposal construction are forecast to grow by 3.3% to 5.1% in 2017 over 2016 levels.

The Gulf Coast region has seen labor cost increase between 3.2% to 3.8% in the last 12 months.  There continues to be a shortage of skilled workers (welders, pipefitters, millwrights, electricians & instrumentation technicians) in this region due to the 10 + ethylene, refinery expansions & LNG export terminals that are currently being constructed.  A number of these facilities will be substantially completed by the 4th Q of 2017 & 2nd Q of 2018.

The US overall unemployment rate in the 2nd half of 2017 is forecast to be in the in the 4.4% range.  Unemployment in the US construction sector is in the 5.5% to 6.1% range, a huge improvement from a couple of years back.  As mentioned above, the US Gulf Coast region is currently experiencing a skilled worker shortage (Welders, Pipefitters & Electricians etc.) due to the 10 + multibillion dollar CAPEX projects currently being executed.  Some of these projects are employing between 3,000 & 5,000 construction workers, this shortage will be essentially over by the 4th Q 2017 – 1st Q 2018 when most of these major projects are completed.  US Natural Gas / Shale Oil / Ethane / LNG exports are projected to grow appreciably over the next decade or two as US production increases.

The Canadian Dollar has fallen significantly 5% to 10% against the US Dollar since the November 2016 US Election, latest forecasts are that it could fall to 0.725.  The weakening of oil / gas & commodities markets around the world has impacted the Canadian construction sector.  Oil related construction in Alberta has slowed down appreciably in the last 12 – 18 months.  Construction costs labor & materials are forecast to stay relatively flat in the 2nd half of 2017.

Canada’s population is growing; this growth will have a positive impact on New Home / Apartments, Health Care, Hotels, Retail & Office construction, overall Canadian construction with the exception of Oil / Gas construction is primed to have a decent 2017.  Canadian housing starts continue to surge in just about all the Canadian Provinces.  Toronto & Vancouver housing prices continue to increase unabated, prices have increased between 4% & in some cases 9% in 2016 look for this trend to continue in 2017.  New housing starts are projected to be in the 200,000 to 250,000 range for 2017.  The latest 2017 GDP growth forecast is 2.1%, steady but not that great.  The oil patch in Alberta, Canada has experienced a massive decline; Oil prices need to be in the $65 to $75 a barrel to make the Oil from this region of Canada cost-effective.

The repealed or renegotiated NAFTA could seriously impact both Canada & Mexico, the current thinking is that the Mexican construction sector could slow down quite rapidly in the next six months as private investors & government agencies make sense of what a Trump Presidency means to the Mexican economy.  The Mexican Peso is currently trading at 18.50 Pesos to the US Dollar (5/27/2017), a drop of 15% since the 8th November election.  While a cheaper Mexican Peso may seem to boost exports to other countries & tourism from the USA, it would make imports into Mexico more expensive & it could possibly increase the current inflation rate from 3% to possibly 5% or 7.5% by the 4th Q of 2017.

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