North American Industrial Spending Will Rise 'Modestly' to $322 Billion in 2011

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--North American industrial spending will increase to about $322 billion this year, up from about $312 billion in 2010, Michael Bergen, Industrial Info's executive vice president for marketing and forecasting products, told attendees at the 3rd Annual Mile High Industrial and Automation Conference (MHIAC) in Denver on Wednesday.

"There continues to be a lot of uncertainty in the market now, which is why we are projecting a modest increase for project spending in 2011," Bergen said. He noted environmental regulation, the 2012 U.S. presidential elections, the Japanese nuclear crisis and armed conflict in Libya all could affect this year's North American industrial spending--for better or worse.

In the U.S., industrial spending this year will increase about 2.8% over scheduled 2010 spending, to $237 billion, he forecast. This sum reflects about $169 billion in capital projects and $68 billion in maintenance activities. By contrast, U.S. industrial concerns scheduled about $231 billion in project spending in 2010: $164 billion in capital projects and $67 billion in maintenance work.

"The outlook is a little more optimistic for Canada," Bergen said, noting that IIR is tracking greater development in the oil sands industry, along with further increases in precious metals and potash mining activities. Overall spending is estimated to increase 4.1% over 2010 scheduled spending levels. This year, capital spending is scheduled to rise by 4% over 2010 spending, while maintenance outlays are scheduled to rise 4.5% compared to last year.

And the news from Canada could get better: "Continued high oil prices lead us to believe that there will be additional oil sands projects announced in Canada this year," Bergen said.

Turning to industrial spending in the Rocky Mountains region, the IIR executive predicted that about $23.6 billion in capital and maintenance spending will take place this year, a 2.9% increase over 2010 spending. "There are a lot of alternative energy projects that are scheduled to begin in the region this year, but typically about 70% of those projects have either been delayed or cancelled."

Bergen told the MHIAC attendees that the IIR forecasts are revisited and revised regularly, and that not all projects scheduled to begin in a given year actually kick off according to plan. For example, IIR has been tracking several U.S. nuclear power projects that are scheduled to kick off in 2015, but the recent Japanese nuclear crisis may cause further delays. Those decisions would be reflected in IIR's spending forecasts.

Improving global market conditions have led companies in the North American Metals & Minerals Industry to restart 82 projects with a total investment value (TIV) of $29.6 billion since January 2009, according to Joe Govreau, IIR's vice president of research for Metals & Minerals. Increased global demand for iron ore, gold, copper and coal has led to higher prices for those materials, and thus expanded project activity in those segments both in North America and around the world, he said.

"We used to think that a $1 billion or $2 billion mining project was about as big as it gets, but now there are several overseas mining projects in the $5 billion to $10 billion range," he said. "Part of this increased size is because companies are mining lower-grade resources, and thus require greater size. But many of these large projects are located in remote areas, where there are significant infrastructure needs, including desalination, power generation, port terminal and rail."

North American mining companies have ramped up exports of metallurgical coal to meet overseas demand, he noted. But another segment of the U.S. Metals & Minerals Industry, cement manufacturing, "is pretty dead right now," Govreau told the MHIAC attendees. "In the U.S., cement output is at its lowest level in about 27 years. More than 10% of capacity has been closed. But in China and India, all of the cement plants are running, and many are expanding. It's a night and day difference," said Govreau.

The strong global growth of the Metals & Minerals Industry has led IIR to develop a new industry tracking service, Mine Tracker, which will be launched in April. Mine Tracker will give industry participants increased detail about mine plants and projects around the world. IIR also is increasing its global project coverage of the Metals & Minerals Industry, again to meet customer demand for up-to-date market intelligence on this dynamic global industry.

A third IIR speaker, Jesus Davis, discussed North American Oil & Gas project spending at the MHIAC event. Davis, IIR's vice president of research for the Oil & Gas Industry, told the audience that North American companies have scheduled about $41 billion in capital and maintenance project spending for 2011. Overall U.S. project spending for the Oil & Gas Industry will total about $26.33 billion this year, a decline of 10%. This year's expected downtick follows a healthy spending increase last year in the Oil Patch. "A lot of big projects started in 2010, so this year's decline in scheduled project spending is a reflection that many of those projects are well under way," he said. Capital spending in the U.S. will decline by about 13.9%, but maintenance spending this year is scheduled to rise 5% from 2010 levels.

Turning to Canada, Davis said oil & gas companies have scheduled a 9.2% overall increase in spending compared to 2010. IIR is tracking a total of $12.9 billion in capital projects that are scheduled to begin this year in Canada, an increase of 9.7% over last year's spending. Maintenance spending, at an estimated $1.75 billion, is slated to increase by 5.4% over 2010 spending.

A good bit of this increased spending is due to oil sands projects in Western Canada: Davis said that five projects in that region with a total investment value (TIV) of $5.8 billion have been restarted since January 2009. These were projects that companies had postponed or cancelled outright in 2008 and 2009, but sustained high oil prices convinced companies to restart them.

But these good times among Canadian energy companies led to a bidding war for employees, Davis said: "In 2009 and 2010, we saw companies that operated in remote Canadian regions get into a bidding war for labor. We see less of that now, but if this industry keeps on growing the way it has recently, we expect to see labor shortages in 2011 or 2012."

"Spending in the industrial market is driven by consumers, whose purchases account for about 70% of U.S. gross domestic product," Bergen told the MHIAC event. "In the years preceding the recession of 2007-09, we had economic growth via credit. Consumers have not really de-leveraged in the last few years, and government spending continues to be a red flag for industrial companies, as a lot of that spending is in the form of stimulus spending, which can be pulled at any time. Corporate profits are up, but before businesses spend their profits on new plant or equipment, they need to see an increase in demand, which has been spotty and fragile."

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.