Heavy hitter

Alberta is punching well above its weight in the fabrication sector

When the Alberta Steel Manufacturers (ASM) was formed last year-partly as a response to concerns about lack of awareness of Alberta's fabrication capacity among some owners and global engineering procurement construction companies-the groups backing ASM had more on their minds than just cheerleading for the home team. They had a case to make. And they wanted it heard.

Alberta's machinery and fabricated metals industry includes some 1,700 companies, with about 43,000 employees.

"Annual [gross domestic product, or GDP] contribution to the Alberta economy averaged over $4 billion in the past six years," according to an ASM news release from 2012. The figures cited in the release reflect the combined output for North American Industry Classification System subsectors 332 (fabricated metals) and 333 (machinery). The North American Industry Classification System is used by government and businesses to classify businesses according to the type of economic activity.

That $4-billion average includes the recession of 2009. The machinery and fabricated metals industry sector, expressed in GDP numbers, dropped off sharply that year. From $4.6 billion in 2008, output fell to $3.5 billion in 2009, with a recovery in 2010 to $4.2 billion.

"The [machinery and fabricated metals industry] was hit hard by the global economic crisis, and especially by the weak oil and gas sector," says Jan Reurink, director for economic research and analysis at Alberta Enterprise and Advanced Education. "GDP for this sector in Alberta declined marginally between 2006 and 2008, followed by a large 21 per cent decline in 2009."

The modest recovery of 2010 was followed by a sharp rebound. According to the latest available figures from Statistics Canada, the sector's contribution to the provincial GDP was $5.2 billion in 2011, surpassing the previous record high of $4.6 billion set in 2006.

"GDP in the sector rose 46 per cent between 2009 and 2011. The value of manufacturing shipments has continued to rise in 2012, with a 27 per cent gain during the first half of 2012, compared with the first half of 2011," Reurink says.

The $5.2 billion contribution to the provincial GDP amounts to an estimated $13.7 billion in revenues, according to Statistics Canada.

Overall, in the last dozen years, the sector's growth curve looks relatively consistent, despite the peaks and valleys. Between 2001 and 2011, the number of employees grew by nearly 12,000 to about 43,000, with the value of shipments more than doubling to $13.7 billion.

FAST GROWING

In its pace of growth, however, the sector stands out. From 2001 to 2011, the province's machinery and fabricated metals industry was the fastest-growing manufacturing sector in the province, with output growth of 81 per cent, compared with a 21 per cent increase in GDP for Alberta's manufacturing sector, overall.

"Much of this sector's GDP increase occurred between 2000 and 2006, with an increase of 60 per cent during that period," Reurink points out.

According to an analysis he did, which he notes is derived from Statistics Canada data, the sector's largest subsectors on a revenue basis are:

  • Oil and gas field machinery, worth $4.9 billion in 2011, which had more than quadrupled in size since 2001.
  • Architectural and structural metals, worth $2.2 billion in 2011, had grown by 80 per cent since 2001.
  • Pumps and compressors, worth $1.6 billion in 2011, had risen 65 per cent since 2001.
  • Boilers, tanks and shipping containers, worth $1 billion in 2011, had risen 72 per cent since 2001.
  • Machine shops' products, worth $927 million in 2011, had risen 120 per cent since 2001.
  • Heating, ventilation and air conditioning equipment, worth $432 million in 2011, had risen 56 per cent since 2001.

About 13 per cent of the businesses that comprise the sector have more than 50 employees. Reurink says that although no reliable estimates are available for the primary metals or the transportation equipment sectors, it is estimated that these sectors had in excess of $2 billion in combined revenues in 2010 and employed about 7,000 people.

Some subsectors, such as structural steel fabrication and pressure vessel manufacture, are especially concentrated in the metro Edmonton area. Manufacturing accounted for about 10 per cent of the capital city area's GDP in 2010, and was worth an estimated $5.2 billion, according to the City of Edmonton. Although the metro region's manufacturing sector is diverse, with 13 subsectors making up two per cent or more of the manufacturing pie, a pair of subsectors account for almost 40 per cent of the overall sector-fabricated metal products (23 per cent) and machinery (15 per cent).

The Canadian Institute for Steel Construction (CISC), the Alberta Pressure Vessel Manufacturers' Association (APVMA), and the Alberta government were prime movers behind the formation of ASM. Among their goals was the development of an analysis of both steel fabrication capacity and costs in Canada. A study, which is focused on structural steel, bridge work, carbon steel (non-pressurized) plate work and open web steel joists, is currently nearing completion.

"The study came about to see what the capacity was in Canada and to present the evidence of that capacity," says Tareq Ali, director of marketing at CISC.

As one would expect, structural steel fabrication, which has such a critical role in oilsands development, is a major part of the province's metals fabrication output. Also not surprisingly, Alberta, and the Edmonton region in particular, punch well above their weight in this sector. Alberta's installed capacity for structural steel fabrication is somewhat over 200,000 tonnes per year, according to a recent draft of the final report capacity, which researchers at the University of Alberta are preparing for release by CISC.

The preliminary numbers suggest Alberta has greater structural steel fabrication capacity than Ontario (159,000 tonnes per year) or Quebec (135,000 tonnes). At least 150,000 tonnes of Alberta's 200,000-plus-tonne capacity is located in the Edmonton area, says Paul Zubick, Alberta regional chairman for CISC and chair of ASM.

CENTRE OF ATTENTION

This and other numbers support the view that the Edmonton metro region is a major centre for structural steel fabrication. As already noted, metals fabrication contributed about $2.2 billion to Alberta's GDP. Given that Edmonton accounts for around three quarters of this output, the Alberta capital compares well with a major industrial hot spot at the heart, some would say, of the giant U.S. oilpatch-Houston, Texas. The metro Houston area, which has a population of about six million, had a GDP of $3.9 billion in 2010 for its fabricated metal product-manufacturing sector, according to the U.S. Bureau of Economic Analysis. Metro Edmonton's output, with a population base of 1.2 million, was slightly less than half Houston's GDP figure for this sector.

Another angle also provides a view of the region's capacity. Suncor Energy Inc.'s now-cancelled Voyageur upgrader project would have required about 44,000 tonnes of structural steel.
"That would have been needed over a period of two years and would have used about half our capacity. I know that because we had the contract," says Zubick, who, besides his role with ASM and CISC, is also vice-president, contracts, at Edmonton-based Waiward Steel Fabricators Ltd.

The $5.7-billion North West Redwater upgrader, which is going ahead, will require about 40,000 tonnes of structural steel, he says.

Alberta is also an important manufacturer of pressure vessels, heat exchangers and related equipment. Pressure vessels have a key role in the oil and gas sector and typically account for a significant part of any oilsands project.

"There's a much greater capacity for making pressure vessels in Alberta compared to, say, Ontario," says Bob Saari, manager of APVMA.

He points to a report, covering the years 2002-09, that documents the number of pressure vessels registered in Alberta with the Alberta Boilers Safety Association (ABSA). The pressure vessel category covers 22 product types, which must be registered with ABSA when put into use in Alberta.

Two things stand out in the report. The first is the huge number of units registered in some years. The total went from 10,581 in 2002 to 24,432 in 2005. In 2009, it dropped to 6,191. Until figures for the years after 2009 are in, the figure for 2005 remains the high-water mark.

The second thing that jumps out from the report is the very high percentage of product that was made in Alberta. Even during the biggest year for registrations, 80 per cent of the vessels registered were made in Alberta. This percentage dropped slightly in 2007 and 2008, before zooming to 90 per cent in 2009-a period when many APVMA members, who account for about 65 per cent capacity in Alberta, were operating at around 50 per cent capacity or less.

Although projects like the North West Redwater upgrader are going ahead, some operations people in the steel fabrication sector still point to unused capacity in the province-not a lack of it.

Points out Jim Kanerva, chief operations officer at Waiward Steel: "For the next six months, approximately 50-60 per cent of Alberta's capacity is being utilized."


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