|Where are the projects?|
Engineering construction in Australia is slowing. From the start of the resources boom in 2005 until 2011, engineering construction rose strongly. This was driven by mining and oil and gas.
However, engineering construction fell by 12 per cent in the last financial year. This was also driven by mining and oil and gas, which fell by 20 per cent.
Activity in other sectors – such as water, transport, and electricity – was not strong enough to counteract this fall.
These results emerge from figures released in early October by the Australian Bureau of Statistics (ABS).
They represent a turning point.
Why? Because in the foreseeable future, mining is unlikely to regain its former glitter, while in the face of government budget constraints, infrastructure is unlikely to take its place.
Some qualifications should be made to this broad conclusion.
First, some parts of engineering construction are doing well. Oil and gas remains strong; waste management is a relatively new and growing area; urban population growth and stricter quality standards are expected to boost wastewater developments; and some parts of mining (for example, gold) are relatively unaffected by the current slow-down.
Second, any slowing of cost increases resulting from the end of the resources boom will facilitate an increase in the volume (if not the value) of engineering-construction work.
Third, the ABS figures refer to the value of work commenced (that is, on new projects); the fall in 2011-12 can be taken as a discouraging sign for the medium-term.
However, the ABS also gives figures on the value of work yet to be done (that is, on existing projects); this rose in 2011-12, a good sign for the short-term, pointing to considerable work still in the system.
Notwithstanding these qualifications, many mining-service companies are looking to diversify their activities.
Some are moving into areas within mining where they are not well established (this applies particularly to those involved in coal, a hard-hit area). Some are stepping-up their efforts overseas.
And some are stepping-up their efforts in other engineering-construction sectors, notably public infrastructure.
Overall, life will be harder for mining-service companies than it has been in recent years.
But there may be benefits for public infrastructure, with greater competition among suppliers, consultants and contractors servicing this field.
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