Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Thursday, 25 February 2016

Capex steady (mining a race to the bottom)

Actual capex steadies

Today's Private New Capital Expenditure figures showed total actual capital expenditure holding up surprisingly better than expected, with a quarterly seasonally increase of 0.8 per cent to $31.9 billion.

The market had expected to see a decline of several per cent, in keeping with the trend.

Of course, the trend remains still quite clearly down, despite this significantly better than expected headline result. 

Mining capex has declined by a monstrous 24 per cent over the past year, yet despite a steady improvement in the December quarter investment from other industries hasn't really budged all that much yet. 

Following what we have already seen in the engineering construction data, Queensland capex is down by more than 48 per cent over the past two years, leaving many mining regions desolate in its wake.

Several other states saw an uptick in actual capital investment in the December quarter. 

Expected capex weak

The fifth estimate for 2015/16 capex came in at $124 billion, a little better than expected, although still 18 per cent below the prior year equivalent figure, entirely due to the mining capex collapse. 

The first estimate for total capex for 2016/17 was a miserable $82.6 billion.

Estimate 1 is generally well understated, but this figure is down by some 20 per cent on the prior year equivalent estimate.

The outlook for non-mining industries now seems to be improving, up by 9 per cent, the lower dollar driving a moderate improvement in the manufacturing outlook.

For mining investment, however, this is now simply an epic race to the bottom, with the first estimate for 2016/17 an almighty 36.2 per cent below the prior year estimate.

The big picture is that mining investment could fall by two thirds across the 2016 and 2017 financial years.

In one sense it will be a relief when we finally get there, but investment plans elsewhere don't appear to have lifted as strongly as had been hoped.

Futures markets are pricing at least one interest rate cut in this calendar year and are toying with two.

Analysts are focussing in on May as a likely month for the Reserve Bank pulling the trigger for the first time.