The boom in mining construction throughout Australia could be over within two years, a new report has warned.
A report from leading economic research firm Deloitte Access Economics warns of a shrinkage in the number of new projects planned to go ahead amid rising industry costs and increasing global economic uncertainty.
With housing construction activity at near-decade lows and non-residential building experiencing subdued conditions, mining has been one of the few bright spots in the Australian construction sector in recent times.
Thanks largely to the resource sector, the dollar value of engineering construction work done throughout the country in the March quarter ($29.846 billion – seasonally adjusted) has risen by more than 35 per cent over the past year and is up by more than half in the past three years.
For now, the existing pipeline of work remains reasonably strong. As of March 31, the total value of private sector work yet to be done in oil, gas and energy related resource construction stood at $91.826 billion, according to estimates from the Australian Bureau of Statistics (ABS). That’s nearly double the $49.946 billion which remained outstanding as recently as June, 2010.
Furthermore, some mega-projects are still coming in. Woodside’s huge Browse Basin development came a step closer to reality last week when the Environmental Protection Authority gave the project a conditional recommendation for approval.
Because of this, Access Economics’ Chris Richardson acknowledges that for the next few years at least, current investments are sufficient to keep activity in the sector extremely strong even if the global economy falters.
Still, Access says, the number of new projects coming across the line is dropping.
“Mining companies are making it clear the current spike in investment is due to decisions taken a while back, whereas we are getting few new mining mega-projects across the line,” Access says in its report.
One key example of the increasing reluctance of mining firms to commit to big projects is BHP’s huge Olympic Dam expansion. In previous public statements, the company has indicated it intends to make a final investment decision on the project toward the end of this year.
Because of increasing global uncertainty, however, many analysts believe an investment call may now be put back by up to 12 months.