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Mining and heavy industry construction to fall: BIS report

16-06-2010
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Leading industry analyst and economic forecaster, BIS Shrapnel, is forecasting a decline in mining and heavy industry construction activity next financial year – the first such decline since 2004.

According to BIS Shrapnel’s Mining and Heavy Industry Construction in Australia, 2009/10 – 2023/24 report, overall mining and heavy industry construction is expected to fall three per cent in 2010/11.

The mining and heavy industry sector currently accounts for 33 per cent of all civil construction work done during 2009/10 ($25 billion), up from 13 per cent ($3.7 billion) in 2000.

“Despite further robust growth in oil and gas construction, led by the Gorgon LNG project, the completion of major alumina refineries, and iron ore and coal projects, as well as a slump in other mineral commencements through 2009 will drive a fall in work done in the coming year,” says Adrian Hart, Senior Manager for BIS Shrapnel’s Infrastructure and Mining Unit.

Given its size, and importance to related segments such as ports and railways, the forecast decline in mining and heavy industry construction is expected to drive a broader fall in overall civil construction work next financial year beginning July 1.

This forecast flies in the face of Treasury’s projections that a boom in mining-driven engineering works will help restore the Commonwealth Budget to surplus within three years.

BIS Shrapnel is forecasting private sector funded engineering construction to waver around the $48 billion to $50 billion range for the next two years, with a decline slated for 2010/11.

“Combined with recent March quarter data, which showed another consecutive decline in privately funded engineering work, our analysis suggests that activity in this segment will trend lower through 2010/11, and not experience the overly-optimistic boom being modelled by Treasury,” says Hart.

BIS Shrapnel expects mining and heavy industry construction activity will eventually pick up again, with the report predicting double digit growth in work done over 2012/13 and 2013/14, following a mild recovery in 2011/12.

BIS Shrapnel is quick to point out the weaker outlook for mining and heavy industry construction is not the consequence of the proposed Resources Super Profit Tax (RSPT).

“We were already factoring in a weakening in mining and heavy industry construction prior to the announcement of the RSPT,” says Hart.

“While the RSPT has increased uncertainty in the mining sector in the short-term, we believe this is more the result of a lack of effective communication and consultation between the Federal Government and the mining industry about aspects of the tax, not its fundamental structure.”

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