Project delays hits construction and engineering

A new BIS Shrapnel report released today will outline how the slow down in mining is flowing onto the engineering and construction sectors.

But is this all old news, with previous reports outlining this year as the point in which engineering construction slows .

The new BIS Shrapnel report warns that the mining boom, which had driven a surge in engineering construction is now over, according to The Australian.

It states that a peak in investment for large scale projects has been hit, and spending will decline over the next five years and only rebound in the next decade.

The report echoes a similar one released by BIS Shrapnel this time last year, which predicted that the mining driven civil construction boom would end in 2015.

According to its report Engineering Construction in Australia 2011/12-2025/26, BIS expected civil work to jump by more than a quarter in the 2011/12 financial year – approximately $23 billion, on the back of the mining boom and the increasing appetite for minerals and metals in China.

In its latest report it has again predicted a rise, with work predicted be even higher, worth around $128 billion for the current financial year, but expects this to quickly drop by just over 5 per cent as the financial year comes to an end.

However this is still an increase in the levels BIS Shrapnel senior manager for mining and infrastructure, Adrian Hart, quoted to Australian Mining only two years ago.

At the time Hart said "by 2014, the industry can expect to see it hit around $50 billion with growth rates of between 16 per cent to 20 per cent per year".

Although he went on to state that by 2014 the growth in infrastructure work will have climaxed.

"This development in coal, iron ore and LNG should hit its peak in the middle of the decade as commodity prices weaken due to their increased availability, so this massive growth will be stymied and we will see activity slowing for 2015 and then falling to a weaker level by 2020, where we expect it to stabilise around the $30 billion range," he told Australian Mining.

The new report outlines that by 2016/17 there will be a 20 per cent fall from current spending levels, with Hart again reiterating the decline and stating that Chinese demand, which had driven the boom, is over.

"Over the past decade we have witnessed one of the biggest booms in investment in civil infrastructure this country has ever seen. Total work done has risen nearly five-fold. But now this market is turning and will be a drag on GDP," Hart said.

This decrease in appetite is predicted to lead to declines of a third in resource related projects.

"The slowdown in the resource-hungry Chinese economy since mid-2012 has been the key driver of the downturn in work, with several large mining projects once expected to commence in 2013 or 2014 being deferred," the report explained.

Major projects such as Olympic Dam's expansion, and the associated infrastructure, as well port projects like Oakajee being postponed for the time being or indefinitely has hit the sector particuarly hard.

"BIS Shrapnel estimates that resources-related engineering construction activity (including port and rail works) will fall nearly 30 per cent from around $78bn in work done during 2012-13 to around $56bn by 2016-17."

However Hart pointed out there is no risk of a "sharp collapse" in projects in the near term.

He has pointed to the expected energy boom in Australia, driven off the back of the demand for LNG, with many projects driving construction, such as Curtis Island, however the cancellation of major projects such as James Price point has shrunk these expectations.



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