Thanks to a more than doubling in engineering construction activity mining and heavy industry, the construction industry in Victoria has a positive outlook even as the effect of federal government stimulus measures continues to subside.
Thanks to the $6 billion Loy Yang Coldry Plant Project, along with a syngas plant adjacent to the Loy Yang Power Station as part of the Monash Energy Coal Gasification and Liquids Project ($650 million), both scheduled for commencement in the second half of 2011, the Construction Forecasting Council (CFC) expects the value of work done on mining and heavy industry projects to reach $1.940 million in the year to March 2012 – more than double the $863.6 million recorded in the twelve months to March this year.
Because of this, along with strong activity in other civil sectors such as roads, telecommunications and electricity, the CFC expects the overall value of construction work in the state to rise 5.1% over that same period to come in at $35.695 billion. This will be achieved in spite of an anticipated decline in activity on education buildings as work associated with the federal government’s Building Education Revolution (BER) program continues to wind down.
Longer term, however, the CFC expects moderate levels of growth, with activity not reaching $40 billion until 2015/16.
However, with almost all of the growth being driven by engineering, persistent signs of weakness remain in the building sector. Thanks to a plunge in retail and office approvals, the total value of all buildings approved was lower in May than at any time since January 2010. Moreover, at $20.451 billion, the overall value of buildings approved in the twelve months to May was much lower than current levels of building activity ($23.364 billion), meaning that new work is entering the system slower than existing work is being done.
Curiously, construction start data seems to contradict this. According to its latest Forecaster report, construction information service provider BCI Australia expects the value of civil starts to be down 48% over the twelve months to September but expects building starts to be up 23% in the same period. Overall, BCI expects starts to be down 10% in the year to September.
Mining leads the way
As mentioned above, civil construction is expected to be the primary driver of activity growth.
In significant sector developments, according to CFC forecasts:
• As mentioned previously, mining and heavy industry is expected to lead the way as work on the Loy Yang and Monash Energy projects drives a more than doubling in activity in the year to March 2012 to $1.940 billion. Beyond that, activity levels will flatten out, with the value of work expected to amount to $2.035 billion in 2012/13
• Several years of strong growth is expected in engineering work on roads. In the year to March, activity is expected to grow from $2.405 billion to $2.913 billion. Longer term, the value of work is expected to reach $3.410 billion by financial year 2012/13 before surging to a whopping peak $4.433 billion in 2013/14 after work on the $5 billion Westlink – West Gate Bridge Alternative gets going in mid 2013.
• Courtesy of a number of major projects scheduled for commencement in the second half of the year, work on electricity generation projects is set to grow from $1.985 to $2.515 billion million in the twelve months to March next year on the way to reaching $2.851 billion in 2012/13. Major projects include the Yallourn Gas Power Station ($2 billion), the Stockyard Hill Wind Farm ($1 billion), the Macarthur Wind Farm ($850 million) and the Shaw River Power Station ($800 million).
• Thanks to work on the National Broadband Network (NBN), telecommunications activity is expected to grow from $1.052 billion to $1.375 billion in the year to March before flattening out thereon after.
• In residential, whilst moderate growth is anticipated for construction of new houses, activity in multi-residential construction is expected to plummet by more than a third in the year to March from $6.272 billion to $4.090 billion. The value of work in this sector is not expected to bottom out until 2013/14, when activity is set to reach lows of $3.270 billion.
• Work on education buildings will continue to subside as work on the BER winds down, with activity falling from $3.213 billion to $1.833 billion in the year to March on the way to bottoming out at $1.215 billion in 2013/14.
• The one bright spot in building is office construction, with work on the NAB Docklands Campus 2 ($300 million) and the 171 Collins Street Retail and Office Complex ($280 million) set to propel activity from $989.8 million to $1.283 billion in the year to March. By 2014/15, activity will have hit $2 billion ($2.021 billion), more than double current levels.