Annual civil construction activity driven by the current resources boom is expected to peak in 2014/15 at over $125 billion, nearly 50% above 2010/11 levels according to leading industry analyst and economic forecaster, BIS Shrapnel .
BIS Shrapnel is Australia's leading provider of industry research, analysis and forecasting services.
According to its new civil construction report, ‘Engineering Construction in Australia 2011/12 – 2025/26’, BIS Shrapnel says that civil work will jump around 27% (worth $23 billion) over 2011/12 alone, driven by a surge in mining and LNG-related works as well as flood reconstruction efforts in Queensland.
A further 16% growth is expected over 2012/13 and 2013/14 before work peaks in 2014/15, followed by a decline forecast for 2015/16, the first since 2000/01, with further declines expected through the remainder of the decade.
In addition, the positive aggregate picture for the civil construction industry for the next few years masks weakness across non-mining segments and regions.
Adrian Hart, Senior Manager for BIS Shrapnel’s Infrastructure and Mining Unit explains that the current surge is a result of a ‘monster resources battle’ between Queensland and Western Australia with both states expected to see civil construction activity surge around 40% in 2011/12 alone, led mainly by LNG and bulk commodities infrastructure.
They will soon be joined by the Northern Territory and South Australia, with activity in those regions centred round the Ichthys LNG and Olympic Dam Expansion projects respectively.
By contrast, New South Wales is forecast to see near zero growth in civil work through the next three years, while Victorian civil work will decline sharply, according to the BIS Shrapnel report.
According to Hart, while New South Wales does benefit from the Hunter Valley coal projects, much of the growth recently has been driven by a strong upswing in public investment in water, railways, electricity, harbours and roads. Most of these projects are either completed or in the process of winding down.
Besides, state and federal governments generally are in cost-containment mode and will not likely provide a boost to civil work until 2014 or 2015.
Hart points out that Victoria’s strong growth over the past few years has been driven by key projects such as the Mortlake power station, Wonthaggi desalination plant, the Peninsula Link road project and a range of large rail investments including the first stages of the Regional Rail project. Similar to New South Wales, many of these projects are either complete or will move to completion over the next few years, without equivalent large projects in the pipeline to take their place.
Overall, BIS Shrapnel is forecasting Victorian civil work to decline around 20% over the three years to 2013/14.
Estimates by BIS Shrapnel indicate that mining-related civil construction work will leap from around $40 billion in 2010/11 to over $78 billion in both 2012/13 and 2013/14. This includes not only direct construction on mining and minerals processing facilities, but also the construction of railways, ports, roads, water and energy infrastructure to cater for the growth in the resources sector.
By contrast, non-mining civil work, which is predominantly funded by state and federal governments, but also via public-private partnerships, is expected to be lower through the next three years.
According to the Engineering Construction in Australia report, BIS Shrapnel is forecasting a switching in growth drivers over the next 3-5 years. Mining-related investment is expected to peak as early as 2013/14, while non-mining investment should pick up again through the middle of the decade, based on new urban projects centred on roads, railways and utilities infrastructure.
While the mining and energy boom will continue to dominate the outlook for civil construction activity in the short term, BIS Shrapnel notes that the current resources investment cycle has a limited lifespan. Weaker global economic and demand growth, coupled with a strong phase of investment in supply to come through across bulk commodities and energy in the next few years will see mining and energy markets moving closer to balance by mid-decade.
However, according to Hart, the current focus on the mining industry boom is detracting from investment that needs to be made in non-mining infrastructure. He explains that there is still much investment required across transport and utilities infrastructure, particularly in the urban centres, which can become the key driver of growth in civil construction work after the current mining cycle has peaked.