Mining-led construction boom to peak in 2014: Deloitte

Australia's mining-led construction boom will peak in 2014 with the value of planned projects already starting to contract, according to the Deloitte Access Economics September quarter Investment Monitor.

Deloitte Access Economics expects investment levels to continue to rise in the short term and then peak in 2014 as fewer projects move through planning to the construction phase.

It notes that investment in mining projects has been the “major driver of economic growth” but says that “all good things must come to an end”.

Mining investment projects currently account for nearly half (46%) of all major construction projects  either under construction or mooted, with transport and storage infrastructure projects (many tied to mining projects) making up nearly a third (31%).

The report finds that the value of planned projects has fallen back slightly over the past three months by $10.6 billion to $465 billion due to a lack of new resources projects, and some project cancellations, including BHP Billiton’s $20 billion Olympic Dam mine expansion project near Roxby Downs, as well as the delaying of the Port Hedland outer-harbour port expansion project in the Pilbara region in WA.

“While the bulk of other resources projects in planning are still on the agenda, there are question marks over the scale of some potential projects, such as Fortescue’s $6.2 billion Solomon mine expansion and [Gina Rinehart’s] Hancock Prospecting’s $9.5 billion Roy Hill project," says Deloite Access Economics.

Question marks also hang over Xstrata’s possible $6 billion Wandoan coal mine in Queensland, which has been placed on hold until market conditions improve, while BHP Billiton’s plans for a $3 billion expansion of the Peak Downs coking coal prospect have been shelved.

The Investment Monitor, which tallies all private and public engineering construction, non-residential building and equipment investment projects in all Australian industries, found the value of projects increased by $6.2 billion, or 0.7% from the June quarter, and has increased by 3.7% over the past year.

As the chart below shows, the mining boom accelerated from March 2011, but has slow-down since the start of the year.

Value of definite projects by status ($billion)

Mining projects currently account for $422 billion (45.6%) of all investment projects in Australia. Of these, $222 million are under construction and $22 billion are committed to be built.

However, $106 billion are under consideration and a further $73 billion are considered "possible" – indicating some level of uncertainty about the future pipeline of projects.

Transport infrastructure projects – mostly rail – account for $289 billion (31.2%) of projects under construction or mooted. Many of these rail projects support the flow of materials to and from mining projects in remote regions.

Non-residential projects account for just $95 billion (10.3%), with the biggest contributors being educational and healthcare projects.

“This portion of the construction sector is on the wrong side of the two-speed divide, with soft retail turnover, little white-collar jobs growth, and weak business and consumer confidence providing a shaky foundation for ongoing investment,” Deloitte Access Economics says.

The three biggest new projects identified in the report are wide-ranging being the proposed $1.1 billion North Surat Taroom Coal Project in Queensland from Cockatoo Coal, a proposed $1 billion light rail network for Perth and an $815 million development of the Commonwealth games village on the Gold Coast.

There were $21.5 billion worth of projects were completed during the September quarter, including the $4.8 billion airport link road works towards Brisbane Airport; the $3.5 billion Wonthaggi desalination plant in Victoria; the $2.6 billion Karara magnetite iron-ore mine, east of Geraldton in WA; and Incitec’s $935 million Moranbah ammonium nitrate plant in Queensland’s Bowen Basin.

The quarterly report ties in with the thinking of the RBA, which said in last week’s November Monetary Policy Statement that while “mining investment has continued to grow rapidly” due to a pipeline of liquefied natural gas (LNG) projects in recent quarters “mining companies have scaled back their investment plans”.

The four biggest projects identified by Deloitte are all LNG projects, led by the $40 billion construction of the Kimberley Gas Hub at James Price Point, Inpex Ichthys $34 billion LNG project increased and the $19.6 billion Queensland’s Curtis LNG project – the value of all these projects have been upwardly revised since the June quarter.

The RBA expects mining investment to “peak a little earlier and at a lower level than had earlier been expected (around 8% of GDP rather than around 9%).

“This change reflects the reappraisal of spending plans in the coal and iron ore sectors as well as a reassessment of the profile for spending on some large and complex LNG projects,” says the RBA.

Deloitte Access Economics says some projects “on the drawing board may be further from the green light now than they were three or six months ago, given the downturn in global commodity prices and concerns over China’s development path in the short term”.

 Despite the slight contraction, the report notes that volume of mining work underway at present is “still astounding”, with WA and Queensland leading the way and accounting for 51% of the value of projects including in the Investment Monitor database.

NSW and Victoria account for a combined 17% of projects, while South Australia has slipped from 6% of all projects to just 3% of projects in the three months from the June to September quarter.

The biggest project in NSW is the $6 billion Barangaroo development in Sydney as well as plans for redevelopment of Centrepoint, Imperial Arcade and Skygarden centres on Pitt Street “set to be finalised very soon”

Victoria’s investment pipeline is modest, but it will get some of the resource pie with construction to 2016 of $4.4 billion Kipper-Tuna-Turrum Project located south east of Lakes Entrance in Bass Strait.

The other major projects are rail and road projects including the $5.3 billion Regional Rail Link from West Werribee to Melbourne’s Southern Cross Station; the $980 million project to widen the Western Ring Road between the Hume Highway and the West Gate Freeway, as well as the $759 million ‘Peninsula Link’ - a 25km four lane connection between Eastlink at Carrum Downs to the Mornington Peninsula Freeway at Mount Martha.

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