November 2007 Market Research

[BMironov]

Calgary Herald:Plutonic leads private power `gold rush` (Nov 23, 2007)
http://www.canada.com/calgaryherald/news/c...96-9fe24440784b

QUOTE Plutonic Power Corp. invited B.C. Premier Gordon Campbell, native chiefs and other officials to this remote valley 105 kilometres northeast of Powell River on Vancouver Island to flick the switch on the largest private power-generation project in B.C. history.
...
The $660-million East Toba/Montrose run-of-river hydroelectric project -- one of 34 similar power projects in this region known as the Green Power Corridor -- is expected to generate 745 gigawatt-hours of electricity a year. That`s enough power to run about 75,000 homes.

If the rest of the power corridor is developed at an estimated cost of $3 billion, Plutonic ultimately expects to generate enough energy to power 500,000 homes
...
A new 230-kilovolt, 150-kilometre transmission line will be built to link the Green Power Corridor with B.C. Hydro`s electrical grid at Saltery Bay, about 25 kilometres east of Powell River.
...
The Toba River project is among 38 contracts B.C. Hydro awarded in July 2006 to independent power producers, including 29 hydro, three wind, two biomass, two waste heat and two coal/biomass projects totalling about 7,000 gigawatt hours of energy per year.

 

[BMironov]

TD Economics:CHINESE BOOM TO BACKSTOP COMMODITY MARKETS IN 2008-09 (Nov 23, 2007)
http://www.td.com/economics/commodity/cpr1107.pdf

QUOTE Debt and equity markets may still be dealing with the aftermath of this summer`s credit crunch and efforts to re-price risk, but world commodity markets have remained resilient. After losing ground in the July-August period, the TD Commodity Price Index (TDCI) in U.S. dollars more than recouped those losses in September and October. And based on figures so far in November, another healthy gain in the order of 6% is in the cards. What`s more, with only six weeks to go in 2007, 12 of 18 commodities tracked are poised to register increases on a December-to-December basis, with the overall index headed for its 4th double digit increase (+16%) in the past five years.

The estimated 2007 performance by commodity shown in the chart on the next page hides some large gyrations during the year. Non-precious metals and minerals, in particular, have been on a rollercoaster ride, with copper and zinc succumbing to significant selling pressure of late. Other prices, such as lumber and hogs, have sunk to depressed levels as conditions in their specific markets have soured. But the continued upward price momentum in the majority of areas, especially during a year when the risks of a housing-led U.S. recession have grown, has defied the odds. Indeed, it was only last fall that the vast majority of 2007 year-end targets for crude oil were running at US$60-65 per barrel, a dramatically different environment than the current US$100 world.


Outlook for 2008 and beyond

This edition of the TD Quarterly Commodity Price Report features our view for 2008 and 2009. In short, our crystal ball reveals that while ongoing global resource needs are likely to remain strong and keep markets relatively tight, the recent ascent in the U.S.-dollar TDCI is likely to flatten in 2008, before paring a modest 4% in 2009. In Canadian-dollar terms, prices on balance should follow a similar path next year, with a pull-back in the loonie towards 95 U.S. cents in 2009 setting the stage for a 5% rally.

Next year, pull-backs in crude oil, copper and wheat prices are offset by higher natural gas, hog, uranium and lumber prices.

 

[timk519]

Here`s one for the books:
From http://www.theglobeandmail.com/servlet/sto...2/BNStory/Front QUOTE Consider a continental currency: Jarislowsky
OTTAWA — Canada should replace its dollar with a North American currency, or peg it to the U.S. greenback, to avoid the exchange rate shifts the loonie has experienced, renowned money manager Stephen Jarislowsky told a parliamentary committee Thursday. But what would Canada get for doing that? Kuwait`s experience -
From http://www.reuters.com/article/economicNew...203860120070520 QUOTE Kuwait drops dollar peg
KUWAIT, May 20 (Reuters) - Kuwait unshackled its dinar from the tumbling U.S. dollar on Sunday and switched the exchange rate mechanism to a basket of currencies, throwing plans for currency union with other Gulf Arab oil producers into disarray. Kuwait`s central bank, which battled speculators for weeks to defend the peg, said the dollar`s slide against other currencies had forced it to break ranks with fellow Gulf states to contain inflation from the rising cost of some imports.

 

[BMironov]

Prince George Citizen:Intermodal terminal hailed as regional turning point (Nov 26, 2007)
http://www.princegeorgecitizen.com/index.p...&Itemid=562

QUOTE Northern B.C.`s economic forecast has taken a sunny turn, according to CN Rail officials and politicians who officially opened Prince George`s new intermodal terminal and distribution centre at a Saturday ceremony at River Road.

"This is a special moment," Mayor Colin Kinsley said. "This grand opening is really putting Prince George on the map. We are already hearing comments back from Asia that they`re talking about Prince Rupert and the connection through here. With the recent opening of the port, it`s realized a dream of many of us that goes back over a decade.

"This transmodal facility and the Port of Prince Rupert will create new and exciting opportunities and change the face of northern B.C. The potential is enormous. In coming years we will access markets, because we are right in the middle of the world`s greatest wood fibre basket. Our forests are a backbone in our culture, and we`re going to expand on that. With this connection to Asia, in the next decade you`re going to see more and more manufacturing here."
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"Our natural advantages are obvious. You can shave 58 hours of sailing time by landing your vessel in Prince Rupert, and you can have your goods in the U.S. Midwest by the time that same ship would land in the port of Long Beach or L.A."

 

[BMironov]

Canadian Press:Alberta`s hot housing market cools, but still scalding for new buyers (Nov 26, 2007)
http://canadianpress.google.com/article/AL...hlcB40nVC96pjDQ

QUOTE Alberta`s hot housing market is no longer on a roiling boil, but it can still be scalding for first-time buyers in a province that demands $400,000-plus for a mobile home in Fort McMurray."We`re calling it a correction. There`s just been so much steam in (the market) that the top is loose and the steam is getting out a bit," said Jon Hall of the Edmonton Real Estate Board.
...
"It`s the first time in recent history we`ve had a five-month long drop, but it`s also the first time we`ve had a 17-month continuous rise as well," said Hall.

"We`re not living in ordinary times."

He said inventory bottomed out at 2,000 properties in the spring, but has now increased to the point where there are about 9,500 units on the market.

 

[BMironov]

Calgary Herald:City`s robust economy still `far from cooling off` (Nov 27, 2007)
http://www.canada.com/calgaryherald/news/c...35-2ff35f5c8ce5

Third-quarter report shows continued growth

QUOTE There`s been little substantial slowing of overall economic activity in Calgary -- or the city`s contribution to Alberta and Canada`s growth performance, according to a new report.

In its third quarter 2007 review, Calgary Economic Development said Monday the Calgary area accounted for almost half of all new jobs created in the province during July, August and September.

That translated to a 5.7 per cent increase in employment between the third quarter of 2007 and the same period a year earlier.
...
CED noted that in October there was in excess of $24 billion in projects underway in the Calgary area, including the $1.3-billion Calgary Health Region South Health Campus, EnCana Corp.`s $1.1-billion Bow office tower, a $1.1-billion mixed-used development in the Calgary neighborhood of Ramsay and the $1-billion Penny Lane twin tower office complex in the city core.

Adam Legge, CED`s director of research and business information, said the stamina of Calgary`s economy -- it has led all Canadian cities in growth for years -- is truly remarkable.

"It`s a pretty strong report in a year that we thought would be slowing more than it has," said Legge. He noted that along with extraordinarily-strong job creation, Calgary has achieved record-low unemployment rates in 2007, while capital spending, construction and demand for office space has remained sky-high.
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A reflection of the pace of growth can be seen in residential real estate prices, which were 15.9 per cent higher in the third quarter of 2007 than a year earlier, fuelled in part by a 4.5 per cent increase in the region`s working-age population to just under one million people.

 

[BMironov]

Calgary Herald:Alberta construction surges 56 per cent (Nov 24, 2007)
http://www.canada.com/calgaryherald/news/c...a22&k=74397

Value of projects leaps as oilsands book nearly $150B in work

QUOTE The inventory of major Alberta construction projects tops $228.4 billion -- a stunning $70-billion increase from the beginning of this year.

The latest data by the Alberta government also show that the oilsands sector totals a whopping $149.6 billion for 51 projects.

All told, 1,007 projects of varying kinds are planned or underway in the province.

The inventory lists Alberta projects valued at $5 million or greater that have recently been completed, are currently under construction or are proposed to start construction within two years.

The total inventory value is up more than 56 per cent year-over-year, said Richard Corriveau, regional economist for Canada Mortgage and Housing Corp. in Calgary.

The numbers are even more impressive considering that in 2006 the government tracked individual construction projects with a minimum value of $2 million, but changed that to $5 million in January 2007.

"The 56 per cent year-over-year gain is artificially low," said Corriveau. "Had we included projects between $2 million and $5 million, the gain would have been much higher."

Besides the oilsands sector, the second-highest value was the infrastructure sector at $16.7 billion for 290 projects. The third highest was the institutional sector at $11.7 billion for 189 projects.

 

[BMironov]

Statistics Canada:Crude oil and natural gas: Supply and disposition (Nov 28, 2007)
http://www.statcan.ca/Daily/English/071128/d071128e.htm

QUOTE Canadian companies produced 13.5 million cubic metres of crude oil and equivalent hydrocarbons in September, up 5.6% from September 2006.

Exports of crude oil and equivalent hydrocarbons rose 7.4% compared with September 2006. Just over two-thirds (68.1%) of Canada`s total production went to the export market in September 2007.

Domestic sales of natural gas reached 4.2 billion cubic metres, a 0.7% increase from the same month in 2006.

Marketable natural gas production declined 1.3% from September 2006. Natural gas exports, which made up 66.5% of marketable natural gas, increased 6.8%

Very interesting table of data in the end (about year-to-date 2007 over 2006):
Crude oil
Production: +6.4% (+7,257,000 m[sup]3)
Exports: +4.7% (+3,541,000 m[sup]3)
Imports: +2.1% (+769,000 m[sup]3)
Refinery receipts: +4.7% (+3,616,000 m[sup]3[/sup])

Natural gas
Marketable production: -1.5% (-1,982M m3[/sup])
Exports: +7.4% (+5,605M m3[/sup])
Domestic sales: +4.2% (+2,081M m3[/sup])

So, Canada produced more oil, exported more, imported more and processed more. Oil industry is fine.

It is different story for gas industry. Canada produced almost 2 billion cubic meters less of gas. At the same time exports are up more than 5 billion cubic meters and domestic sales are up 2 billion cubic meters. Overall there is a disbalance of almost 7 billion cubic meters (production - sales). It is about 5.5% of annual production this year.

 

[BMironov]

RBC Economics:Canadian City Trends (Nov, 2007)
http://www.rbc.com/economics/market/pdf/citytrend.pdf

QUOTE Highlights

• Commercial real estate market momentum poised to softenThe current cycle`s momentum in both residential and non-residential real estate markets now appears to have peaked with a slowdown expected over the coming quarters. ... Commercial markets have had a strong run in the current cycle, but the momentum is expected to soften during the next year alongside an overall slower economic growth profile in both Canada and the United States. As more supply of commercial properties reaches the market, some of the current pressures on existing capacity will ease.
  
  
  • Non-residential investment to slow but not stallNon-residential investment clocked in a 13% growth pace in 2006. The buildup of strong demand coupled with significant supply shortages since 2002 created tight real estate markets and spurred a major cross-country construction boom. In reaction to strong demand, there has been a substantial increase in the supply of commercial properties that have come to market in the last few years, with the downtown cores of Toronto and Calgary leading the pack.
    
    
    • Non-residential permits still indicating more strength aheadThe issuance of permits provides a good gauge of forthcoming activity existing in the pipelines. Non-residential permits are up 22% on a year-to-date basis with all three subsectors — commercial, industrial, and institutional and government — posting solid growth in the value of permit issuance (chart 2). The commercial sector alone accounts for roughly 60% of total non-residential investment and has been a critical support to strength in the sector.
      
      Land-constrained downtown office markets tight
    Office space in the downtown core in many cities has tightened significantly in the last few years. Demand pressures have translated into record-low vacancy rates and rising rental costs in many cities.
    
    Labour and supply shortages fuel a rising cost environment
  Plunging vacancy rates have exerted sustained upward price pressure on real estate. Inflation has been a growing concern in the current cycle — particularly in Alberta where inflation is tracking at more than twice the national rate. The persistent strength in the non-residential building construction market has caused the cost of labour and building materials to soar (chart 6).
  
  Capitalization rates

In order to evaluate quoted rents in the context of their local markets, capitalization rates provide a useful tool to help determine the relative valuation of a property. ... Vancouver has the lowest cap rate among the big cities, sitting at 5.5% (chart 7). The high cost of real estate in Vancouver is reflected in this low cap rate. Calgary is the only other city with a cap rate below 6%. Vancouver has traditionally been an expensive market, but the shift in Calgary`s market has been quite dramatic.

 

[BMironov]

RBC Economics:HOUSING VALUATIONS POINT TO FROTHY MARKETS IN MAJOR WESTERN CITIES (Sep 2007)
http://www.rbc.com/economics/market/pdf/house_value.pdf

QUOTE Canada`s housing market has been on a bull run for five years running. From 2002 to 2007, major markets across the country saw average annual price growth of 11%. Western cities were significantly above the average, while much of central and eastern Canada came in well below the average. In the prior five-year period from 1997 to 2002, average annual growth was a more moderate 4% with very little regional disparity as most major cities hugged close to the national average. The recent resilience of Canada`s housing markets has begged the question about the sustainability of the current housing cycle. A fundamental factor affecting housing demand is relative house prices.

A look beyond our standard affordability measure

Our affordability measure provides a rough depiction of trends in wages, the cost of capital, energy prices and tax rates, but it has limitations, but it does not directly address whether or not house prices are high today by historical standards and how they compare to local rental options, nor does it account for recent financial innovation, which has altered the dynamics of the housing market through the introduction of products like extended amortization mortgages.

Another measure that provides an indication of an over- or undervalued market is the price-to-rent ratio — akin to a price-to-dividend ratio in the stock market — that compares house prices to rental costs using the rent component in the consumer price index.

Highlights:

• Rising price-to-rent ratios partly justified
• Regional disparities behind soaring price-to-rent ratios
• Highest price-rent ratios in Victoria and Vancouver
• Moderation in the cards for Calgary and Edmonton Saskatoon the lone Prairie outlier Stability in Toronto and Ottawa Quebec`s price-to-rent ratios pushed higher Atlantic Canada markets re-balancing

 

[BMironov]

Scotia Bank:Scotiabank Commodity Price Index (Nov 28, 2007)http://www.scotiacapital.com/English/bns_econ/bnscomod.pdf
QUOTE Longer-term oil supply `limits` — alluded to by major oil companies — unnerve markets, sending oil prices to record highs.

We are again revising up our WTI oil price forecast for 2008 to an average of US$86 (US$85-90) compared with US$72.50 in 2007. Prices are expected to remain high for two reasons: Firstly, non-OPEC supply developments in 2008 appear to be shaping up in a similar fashion to 2006 and 2007. While new field development could boost non-OPEC supplies by 1.1 mb/d (centred in the Alberta oil sands — including start-up of the Long Lake and Horizon projects — Russia & the Caspian Sea area and Brazil), technical and political challenges could once again cut this output. A big improvement in non-OPEC supplies likely awaits the ramp-up of the Sakhalin II project in 2009, with Kazakhstan`s Kashagan field currently held up by protracted fiscal negotiations and infrastructure constraints.
...
Secondly, while US$95 oil has slowed U.S. petroleum consumption, consumers and industrial users in a large part of `emerging Asia` and the Middle East are being shielded from the full weight of record prices through government subsidies (China, India, Malaysia, Taiwan, Indonesia and Saudi Arabia), though these subsidies are becoming a source of public debate. In view of recent shortages, Beijing boosted wholesale prices for gasoline, diesel and jet fuel by 9% in November to encourage domestic refiners to produce more fuel oil from higher-cost imported crude. However, retail prices are still below world levels. China and the Middle East account for over half of global oil demand growth. The impact of high oil prices on European consumers is also being cushioned by dollar weakness against the euro.

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