Pete Wargent blogspot

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

'Huge fan of your work. Very impressive!' - Scott Pape, The Barefoot Investor, Australia's #1 bestseller.

'Must-read, must-follow, one of the finest analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Business Insider.

'I've been investing 40 years yet still learn new concepts from Pete; one of the finest young commentators' - Michael Yardney, Amazon #1 bestseller.

'The most knowledgeable person on Aussie real estate - loads of good data & charts...most comprehensive analyst I follow in Oz' - Jonathan Tepper, Variant Perception, 2 x NYT bestseller.

Thursday, 19 January 2017

WA gulps down its medicine

Resources construction 4 years beyond eak

It's now about 4.5 years since the resources construction boom peaked in 2012. 

The latest figures showed a further 4.7 per cent decline in activity over the third quarter of 2016 to $20 billion, well down from the 2012 peak of $34.2 billion. 

We're now getting pretty close to the end of the contraction, which is good news.

WA takes the pain

Although the resources capex contraction is sometimes still cited as evidence of a possible recession this year, in reality engineering construction activity is now rising (or at worst is flat) in most states and territories.

Arguably the Northern Territory will eventually see a further decline as its major LNG project transitions to production, but at the moment all of the declines are being accounted for by Western Australia, a state which is already in recession anyway.

With engineering construction in WA down from a quarterly peak of $12.2 billion in 2015 to $5.4 billion in Q3 2016, the state is finally taking its medicine.  

Queensland went through the same painful process in 2014 and 2015, but now activity is steadily rising again, driven by new roads, railways, bridges, harbours, telecoms, and other heavy industry infrastructure construction. 

Engineering construction activity was up for the quarter in Queensland, Victoria, South Australia, Tasmania, the Northern Territory, and the ACT.

As Western Australia still has a way to fall before extension of existing iron ore projects to replace depleted reserves stabilise the figures - and because there is also a bit of a drop to come in the Northern Territory post-Ichthys - my rough calculations suggest that resources cliff was about 85 per cent complete by the end of September 2016. 

And that figure may even be closer to 90 per cent by today.