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Co-founder & CEO of AllenWargent property advisory & buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

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Wednesday, 28 September 2016

4 years on, mining cliff approaches nadir


Engineering Construction Activity, largely accounted for by resources projects, crashed 25.9 per cent lower over the year to June 2016.

Work done for the private sector was down by an utterly spectacular 37.4 per cent!

Fortunately, there have been some public sector works, with activity here up by +15.7 per cent over the 2016 financial year.

That's helped to cushion the blow just a little bit. 

The monster crunch was almost entirely driven by the mega projects in Western Australia moving into their production phase - Gorgon, Roy Hill etc. - in part helping to explain why WA has been having such a tough time of it. 

On the positive side there are probably now only one or two quarters of significant declines to come before activity is back at some kind of 'normal' level. 

State versus state

At the state level we can see that activity is rising again in New South Wales and Victoria, and has been for about 18 months. 

More interestlingly activity is now also up in Queensland, a resources state which took its medicine earlier than WA as its LNG and coal construction projects reached completion. 

Although it doesn't matter so much at the national level, the Northern Territory still faces a precipitous decline as the Inpex/Ichthys spend winds up.

Elsewhere, in the southern states activity levels are fairly flat (I think probably in the ACT too, but the available data are incomplete). 

Quarterly activity in WA of $6.5 billion evidently may have some way to fall yet, but overall the end of the mining cliff is now much nearer than the beginning. 

The outlook

The figures show that quarterly engineering construction activity peaked four years ago in September 2012.

It's impossible to get an accurate read on the work commenced, since there are holes in the data (and the figures that are captured are necessarily lumpy and prone to peaks and troughs). 

However, the big picture is that work commenced has returned to some kind of normality.

In summary, the mining cliff is about 80 per cent or more baked in.