Mining services rebound revives asset acquisition plans

A rebound in sentiment in the mining services sector has sparked a significant increase in the asset acquisition intentions of businesses in Western Australia and Queensland, according to the latest Alleasing Equipment Demand Index.

The result for Western Australia increased from 14 per cent of businesses in the March 2017 quarter to 25.9 per cent this quarter, while the figure for Queensland almost doubled from 16.5 to 31.4 per cent.

However, this was before the devastation caused by Cyclone Debbie, the impact of which will inevitably be seen in Queensland’s results in the next round of the Index.

These are just some of the findings from the latest round of the Alleasing Index, which also revealed that nearly one third of businesses nationally (30.6 per cent) plan to increase their asset base during the June quarter compared to 25.6 per cent from the previous Index.

Further analysis of state-based data shows that businesses in South Australia and the Northern Territory were the least positive, with a below average 23.2 per cent planning asset acquisitions, suggesting that the energy crisis in South Australia may have played a role in dulling sentiment.

Of other states, businesses in New South Wales and the Australian Capital Territory continue to deliver the most positive response, with 33.8 per cent planning an increase in assets.

With economic growth in New South Wales at 3.5 per cent this appears to have had a positive effect on businesses in the state and has been a significant contributor to driving national growth which currently stands at 2.4 per cent.

In Victoria and Tasmania, a lower 29.4 per cent of businesses are forecasting acquisitions, down from 31.3 percent in the previous round. This comes as a surprise given Victoria’s rising population is expected to increase, which, will see demand for infrastructure and services across all sectors rise.

“Western Australia snapped five quarters of negative growth in the first quarter of this year, and the state’s economy grew 0.4 per cent according to the ABS,” Alleasing chief executive Daniel Blizzard said.

“We see that result reflected in the Index, with the improved results in both Western Australia and Queensland a key factor in the national average for the Index moving up by five percent. The resurgence in commodity prices in the second half of last year is now starting to impact sentiment and this in turn is flowing through to plans to acquire assets and drive growth.

“We are clearly seeing businesses in the mining services industry regaining confidence. Although the number of firms intending to increase their asset base is below the national average, it has jumped seven percent from the previous quarter.”

According to the Australian Bureau of Statistics (ABS), Australian businesses are forecast to spend around $52 billion on plant and equipment in the 2017 financial year.

Index data suggests there is a clear bias towards outright purchase of this equipment, with respondents reporting that an average of just 25 per cent of their current asset base is leased or otherwise finance

These figures suggest that of the assets acquired this financial year, $40 billion, or around 2.5 per cent of GDP, will be purchased outright, while $12 billion will be financed.

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