Home > Decline in construction, growth in production, BREE report says

Decline in construction, growth in production, BREE report says

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Australia’s resources sector is transitioning out of a period of high capital investment and into a production phase as new projects ramp up.

Releasing its biannual report on Wednesday the Bureau of Resources and Energy Economics (BREE) said dropping commodity prices and rising costs are creating challenging investment conditions, resulting in the number of projects moving through the investment pipeline to decline.

Over the last ten years Australia has experienced rapid escalation in investment in resources and energy projects on the back of higher commodity prices.

At the end of October there were 63 projects at the committed stage with a combined value of $240 billion, compared to just six months earlier when there were 73 projects worth $268 billion.

BREE deputy executive director Wayne Calder explains the decline in value is the result of a record period for projects moving to the completed stage, in particular the completion of “mega” projects valued at over $5 billion which accounted for more than 50 per cent of the total value of investment over the past decade.

“While the number of projects at the committed stage contracted, the six months to October 2013 saw 18 projects completed at a record $30 billion,” Calder said.

Projects completed over the last year are adding significant capacity to Australia’s production profile.

“Australia is now seeing a transition from the investment phase of the resources boom to the production phase,” Calder said.

Looking ahead, BREE said forward projections are indicating investment across the resources and energy sectors is likely to continue its decline over the medium term.

“There remains an opportunity to sustain higher levels of investment should projects at earlier stages of development proceed through the pipeline,” BREE stated.

But the global surge in resources has seen commodity supply catch up and in some cases exceed demand, resulting in softening prices.

To read the full report click here.

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