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The North America Heavy Construction Sectors : A Company and Industry Analysis (August 2007)
Mergent, Aug 2007, Pages: 40
This report updates the previous North American heavy construction report, focusing on the markets in the United States and Canada
Current Environment - Key Points
- Rising construction costs continued in the first six months of 2007 due to a lack of supply of construction materials
- The generally upbeat earnings reports by heavy construction companies helped power blue chips as well as the rest of the stock market in the first six months of 2007
- Foster Wheeler (NYSE: FWLT) was the top gainer among leading heavy construction stocks tracked by Mergent, up significantly by 105.36% to US$106.99. It was followed by Martin Marietta (NYSE: MTZ) with a gain of 56.8%
- The energy sector has been booming for more than four years but it picked up steam even further about a year ago when surging prices of crude gave oil and gas firms extra resources to finance capital projects. Much of that money went to companies that design and build large facilities
- Merger, acquisition and alliance activity in the sector continued to be intense during most of the first six months of 2007
- Despite higher material costs, top players in the US and Canada performed well in the first quarter of 2007
- The heavy construction sector in Canada continued to profit from a boost in government-funded and private projects
Industry Profile - Key Points
- The construction industry in the US is a key indicator of economic health, reflecting the nature of not only the domestic consumer market but also the domestic industrial market. One of the key indicators is total construction spending, which fell in the early months of this year
- For the first five months of 2007, total construction spending came in at US$5.91 million, down 0.75% from US$5.95 million recorded in the same period in 2006
- In the first six months of the year, construction employers in the US employed a total of 5.64 million workers compared with 5.4 million in 2006
- Construction employment in Canada has been rising steadily, hitting 6,699,700 jobs in the first half of 2007
- The value of construction equipment exports from the US continued to rise in 2006 to a total of US$413.7 billion
- Canadian builders forked out C$12 billion (US$11.42 billion) worth of permits for non-residential projects, compared with US$9.42 billion (US$8.97 billion) a year earlier. - In Canada, investment in the non-residential sector totaled C$19.3 billion (US$18.37 billion) in the first five months of 2007, compared with C$17.2 billion (US$16.37 billion) for the corresponding period in 2006
Market Trends and Outlook - Key Points
- The prices of construction materials have been escalating with higher demand from overseas and higher energy costs. - Instant messaging, websites and emails are continuing to speed up communication between geographically dispersed developers, designers, contractors, customers, and suppliers
- Construction machinery manufacturers forecast smaller gains in 2007, following double-digit growth in 2006
- As the adverse environmental effects of building become more apparent, the field of green construction is becoming more popular
- Government investment in heavy construction projects is set to encourage growth in the sector in the next few years
- The Canadian construction industry is adapting to concerns about climate change, by shifting its focus to more environmentally friendly construction
- Economic factors and a fear of resource shortages are putting greater pressure on the Government to improve resources management in the industry
- After three years of strong growth, investment in non-residential construction and machinery and equipment is projected to grow by 5.8% in 2007
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