Construction Price Trends

• According to the World Bank’s Steel Price Index, the price of steel on the international market increased by 15.6 per cent in 2011.
• This followed a relatively modest 1.1 per cent recovery in the price of steel during the full year 2010, and also represented the strongest change in the annual average steel price since 2008.
• The rebound in world steel prices in 2011 was primarily the result of the business cycle.
• As the global economy continued to emerge from the recent recession, a number of factors influenced the recovery in steel prices.
• Firstly, with the global economic upturn, there was an increase in demand for products in major steel consuming industries such as the auto industry.
• Alongside the increase in demand, there was an increase in optimism in the steel industry which led to restocking as well as the addition of capacity at some steel facilities, on expectation of a rebound in the steel industry in the longer term.
• As demand increased, output and price also increased.
• Based on estimates from the World Steel Association, global crude steel production registered an annual increase of 6.8 per cent in 2011 to reach a record 1,515 million tonnes.
• The relatively strong rebound in steel price in 2011 was not evenly distributed throughout the year, but instead mimicked the vagaries of global economic growth.
• Price showed its strongest rebound in the first half of the year when global growth was relatively robust and global growth prospects were fairly positive.
• Reflecting this, the average price of steel as captured by the World Bank’s Steel Price Index registered quarterly increases during the first two quarters of 2011 as follows:
• January – March: 7.4 per cent; and
• April – June: 9.1 per cent.
• On a year-over-year basis, the increases during the first two quarters of the year were 18.4 per cent and 13.1 per cent.
• As the year progressed, global growth slowed, led by a slowing in the large US economy.
• In tandem with the global economic slowing, the quarterly change in steel price turned negative (-0.6 per cent) in the third quarter of the year and remained negative (-14.1 per cent) in the final quarter.
• However, reflecting the strength of price changes in the first half of the year, the average price of steel for the full year 2011 climbed by a relatively strong 15.6 per cent during the full year 2011.

Source: World Bank



Source: World Bank

• In 2011, the average price of West Texas International Crude Oil, as captured by the World Bank, averaged US$95.05.
• At that level, average prices were 19.5 per cent above that registered in 2010.
• On the broader international market, the change in the average price of crude oil was a stronger 31.6 per cent to reach approximately US$104.
• The change in the price of crude oil on the international market in 2011 reflected a number of factors including:
• Changes in US and global growth and growth prospects during the year;
• Supply demand imbalances; and
• Conflicts in the Middle East.
• Although average price increased for the full year 2011, these factors generated significant variations in crude oil prices during the year.
• In early 2011, the predominant factor influencing the price of crude oil was the sustained rebound of the global economy.
• As measured by the World Bank, the monthly average price of West Texas International Crude Oil showed sustained growth during the first quarter of the year, moving from an average of US$89.15 per barrel in December 2010 to reach $102.92 in March 2011.
• This was the first time since September 2008 that the average price of West Texas Crude reached the US$100 mark.
• On a quarterly basis, this influenced a price increase of 10.4 per cent during the first quarter of the year to reach US$93.95.
• In April 2011, the average price of West Texas International Crude Oil continued to increase, jumping by 6.8 per cent to reach $US109.96 per barrel.
• However, a number of factors in the second quarter of the year triggered a pull back in the average price of crude oil.
• These included:
• Global economic uncertainties;
• Depreciation of the US dollar; and
• Supply concerns due to political unrest in North Africa.
• Reflecting these concerns, the average price of West Texas International Crude Oil showed respective monthly declines of 7.9 per cent and 5 per cent in May and June 2011.
• Notwithstanding these declines, at US$102.50 per barrel, the average price for the second quarter was 9.1 per cent above the first quarter, influenced by the peak price level registered in April (US$109.96).
• For the remainder of 2011, global economic uncertainties intensified with the prominence of the high level of public debt in the US as well as the intensification of debt concerns in Europe.
• As a result, the average price of West Texas International Crude Oil remained below the US$100 mark for the remainder of the year.
• On a quarterly basis, the average price of West Texas International Crude Oil declined by 12.5 per cent in the third quarter of 2011 before bouncing back with a 4.8 per cent increase in the final quarter of the year.
• Despite the retreat in the price of West Texas International Crude Oil in the second half of 2011, relatively strong increases in the first half of the year ensured the 19.5 per cent increase in the average price registered for the full year 2011.

Source: Ontario Ministry of Transportation



Source: Ontario Ministry of Transportation

• In 2011, the average price of asphalt in the Toronto Area, as captured by the MTO’s Performance Grade Asphalt Cement Price Index for the Greater Toronto Area, increased by 2.7 per cent.
• This contrasted with declines in average prices in the preceding two years.
• The increase in the price of asphalt in 2011 was influenced by higher prices during the first half of the year.
• As the price of crude oil increased during the first half of 2011, the price of asphalt (which is a by-product from crude oil) also increased.
• During the first three months, the MTO’s Performance Grade Asphalt Cement Price Index was 15.4 per cent above that of the first quarter of 2010.
• In April, and the start of the road construction season in North America, the index registered a month-over-month increase of 9.8 per cent.
• However, as the second quarter progressed and global economic concerns influenced a lowering in crude oil prices, the increase in the price of asphalt also moderated.
• Monthly change moderated to 1.1 per cent in May and turned negative (-0.6 per cent) in June to influence a significant moderation in the change in the price of asphalt during the first half of the year.
• For the first half of the year, the change in the MTO’s Performance Grade Asphalt Cement Index moderated to 3.7 per cent, down from the 15.4 per cent pace of growth observed in the first quarter of the year.
• The monthly decline in average asphalt prices in the Toronto area continued throughout the third quarter and into the fourth quarter of the year resulting in a further lowering of the change in the average price to 2.7 per cent for the full year 2011.
• Viewed over a longer term period, the average price of asphalt in the Toronto area maintained its long term upward trajectory, although remaining below the record high reached in 2008.
• As is customary, prices fell during the end of the road construction period in the fall of 2010 and remained at that level throughout the first quarter of 2011.
• The seasonal jump in prices occurred in April 2011, but was short lived as global economic uncertainties became more pronounced in mid-year and remained a key influence on prices for the remainder of the year.

• During the period January – September 2011, price of Portland Cement, as measured by STATSCAN’s Portland Cement Index, increased by 1.7 per cent relative to the similar period of 2010.
• This was below the 1.3 per cent growth in the price of Portland Cement registered during the first nine months of 2010.
• Throughout the year, the year-to-date changes by STATSCAN’s Portland Cement Index have lagged behind the pace of growth registered throughout 2010.
• If the current trend continues into the final quarter of 2011, it is likely that the price change for Portland Cement for 2011 will be the lowest annual price change registered in Canada since 2003.

• In 2011, the average price of gravel and sand in Canada, as captured by STATSCAN’s Sand and Gravel Price Index, increased by 1.9 per cent.
• This represented a slowing in the pace of growth relative to the 3.9 per cent increase registered in 2010.
• The slower pace of growth in the average price of sand and gravel was in line with the changes observed in the prices of many commodities, whose prices are mainly influenced by domestic factors.
• The existence of excess capacity in the Canadian economy during 2011 may have been a prime factor in the slower price changes observed in many construction price inputs, including sand and gravel.

• The pace of growth in the price of Ready Mix Concrete in Canada remained relatively weak during January – September 2011.
• Based on STATSCAN’s Ready Mix Concrete Index, the average price of ready mix concrete increased by 0.6 per cent during January – September 2011.
• This was comparable to the 0.7 per cent and 0.6 per cent increase registered in 2009 and 2010 respectively.
• During the three years prior to 2009, the annual average increase in STATSCAN’s Ready Mix Concrete Index was around 5 per cent.
• The deceleration in the average price for Ready Mix Concrete since 2009 reflected, in part, lower demand associated with the negative impact of the 2008-09 recession on activities in the building industry as well as the subsequent fall in production levels in the Canadian economy to levels below its full production capacity.

• During the first nine months of 2011, STATSCAN’s Union Wage Rate Index (average of 16 trades) of selected construction workers in the Toronto CMA increased by 1.9 per cent.
• This represented a slight acceleration in the pace of wage growth relative to the 1.3 per cent recorded during the first nine months of 2010.
• However, at 1.9 per cent, the growth in the Wage Rate Index remained relatively tame to reflect the slow down in wage rate growth observed since 2009.
• After registering relatively strong annual changes in 2008 and 2009, (changes which were above the average rate of inflation in both years), the rate of growth in the Union Wage Rate Index (average of 16 trades) of selected construction workers in the Toronto CMA slowed substantially in 2010, as well as in January – September 2011.
• At a growth of 1.9 per cent January – September 2011, the change observed was also well below the headline inflation of 3.2 per cent as at September 2011².
• The continuation of the slow down in the rate of change in wage rates in the construction sector continue to reflect broader economic factors including:
• Excess capacity in the Canadian economy: The Canadian economy is estimated to be operating below its long run production capacity. This condition has characterized the Canadian economy since the recent recession in 2009. This has manifested itself in the labour market as higher unemployment rates and a moderation in wage growth.
• The direct impact of the recession on the building industry: The recession negatively impacted directly on building activities, resulting in lower demand for construction workers, and therefore created an environment conducive to lower wage growth in that trade.
• Lagged effect of a lower inflationary environment: In addition to the direct and indirect impact of the recession on the wage rate for construction workers, the lower inflationary environment may have also impacted wage growth. In 2009 and 2010, the annual inflation rates in the Canadian economy were 0.3 per cent and 1.8 per cent respectively. During the same periods wage rates of selected construction workers in the Toronto CMA increased by respective rates of 4.0 per cent and 3.7 per cent. In 2010, the increase in the same wage rate was 1.9 per cent, which was almost in line with the annual average inflation of 1.8 per cent. In January – September 2011, the change in the wage rates of selected construction workers in the Toronto CMA remained at 1.9 per cent relative to the similar period of 2010. This was below the inflation rate of 3.2 per cent which prevailed during the same time period.

Source: Capital Expenditure Price
Statistics – STATSCAN

• For the full year 2011, the Non-residential Construction Price Index (NRCPI) for the Toronto Census Metropolitan Area (CMA) increased by 4.3 per cent.
• This followed annual declines in the index during the two preceding years.
• After an average annual increase in the NRCPI of 7 per cent during the period 2004 – 2008, the index fell by 1.9 per cent during the recessionary year 2009 and fell again by 0.1 per cent in 2010.
• The declines in 2009 reflected to a large extent the impact of the global economic slowdown and the decline in many commodities on the international market, an influence which continued to influence changes into 2010.
• Also contributing to the fall in prices was the slowdown in the Canadian economy and, in particular, the domestic construction sector.
• In 2011, the global and Canadian economic environment continued to improve, resulting in an increase in construction activities and the price of construction inputs.
• The increase in the index was evident throughout all four quarters of 2011 when quarterly average change in the index relative to the corresponding quarters of 2010 were as follows:
• January – March 2011: 3.4 per cent;
• April – June 2011: 3.9 per cent;
• July – September: 4.3 per cent; and
• October – December 2011: 4.7 per cent.

• At the national level, the index showed similar changes.
• In 2011, the index advanced by 3.7 per cent, a rebound relative to two consecutive years of declines in 2009 (-5.8 per cent) and 2010 (-0.4 per cent).

Source: Consumer Price Index
– STATSCAN

• In 2011, the annual average inflation rate in the Canadian economy was 2.9 per cent.
• This was an acceleration in the inflation rate when compared with the 1.8 per cent registered in 2010.
• The acceleration in Canadian inflation was influenced primarily by the increase in commodity prices, particularly food and crude oil.
• According to the World Bank’s Food index, the average price of food for low and middle income countries increased by 24.3 per cent in 2011, representing the strongest annual increase in the price of food since 2008.
• The average price of crude oil on the international market jumped by 19.5 per cent in 2011 following a 28.8 per cent increase in 2010.
• Although the average inflation for the year accelerated in 2011, the core inflation rate remained relatively tame throughout the year, ranging from a low of 0.9 per cent in February to 2.2 per cent in September.
• These rates fell well within the Central Bank’s inflation rate target range of 1 per cent to 3 per cent.
• The tame core inflation rate registered during the year reflected:
• Excess production capacity in the Canadian economy;
• Relatively high (though declining) unemployment rates which continued to act as a constraint on wage rates and the level of consumer demand; and
• An increasingly globalized market place where less expensive goods can be sourced from lower priced destinations; and
• Based on forecasts from the Bank of Canada, in 2012, the core inflation rate is expected to remain at levels similar to those recorded in 2011.
• Current market expectation is for the annual average inflation to be about 2 per cent in 2012.