Construction spending set to soar 25% over the next three years: BIS Shrapnel

Australia’s mining sector is set to underpin a massive increase in civil construction spending, with the total amount spent by public and private sectors tipped to exceed $100 billion for the first time in 2013-14.

The figures, from economic research firm BIS Shrapnel, show gas and mining projects will help private sector mining-related construction spending double between 2010 and 2014 to $57 billion.

Western Australia (home to the giant Gorgon LNG project) and Queensland will be the main beneficiaries.

Public sector infrastructure spending will decline to around $46 billion over the next three years, as cash-strapped governments reign in spending in order to get their budgets on track.

BIS Shrapnel senior forecaster Adrian Hart says governments will struggle to compete for workers as mining projects ramp up.

“The pressures that the mining industry will bring to bear on the entire civil construction market will have a huge impact on wages growth and cost growth,” he says.

While wage growth is perhaps the biggest worry for governments, Hart says global increases in raw materials such as steel will also present a challenge.

“Not only have you got these strong domestic price pressures, but globally we are seeing materials prices edge up as well.”

One state that will have to continue with its public sector infrastructure spending is Queensland. Hart says the state will spend $4-6 billion on flood reconstruction efforts over the next three years, although $2-4 billion of this will be diverted from other projects.

“It’s work that has to be done, and the Government will have to pay the price to get it done.”

Hart says construction companies in this state are facing a tough few years as the war for talent intensifies.

“It’s going to be hard to see every project get off the ground. They are all scrambling to secure labour forces, but it’s inevitable that some projects will be delayed.”

BIS Shrapnel’s state-by-state forecasts:

New South Wales

“Engineering construction in New South Wales will see reasonable growth in 2010/11 and 2011/12, driven mainly by roads (Hunter Expressway, Pacific Highway projects) rail and heavy industry (coal), but it is being affected by the completion of several large projects including the Kurnell desalination plant and port expansions at Port Botany and Newcastle. An expected consolidation in public sector investment will act as a drag on growth from 2011/12 until the next round of projects – including a rail link – get underway by 2013/14.”

Victoria

“Total activity in Victoria is expected to decline significantly in 2011/12 and 2012/13 as the Wonthaggi desalination plant moves to completion. However, this will mask increases across most other infrastructure segments, with stronger growth from 2013/14 led by further projects in rail (Regional Rail Project), electricity (new generation to replace dirty brown coal), mining and heavy industry (oil and gas, gold, mineral sands), harbours and telecommunications.”

Queensland

“Queensland will have by far the largest rise in engineering construction activity through the next five years, driven by flood reconstruction efforts across transport and utilities infrastructure as well as massive LNG and coal projects which will move into a proper construction phase. Overall, BIS Shrapnel is forecasting activity levels to lift by 50% over the next four years.”

South Australia

“South Australian activity is now moving lower given the completion, or near completion, of major projects (Adelaide desalination plant, Christies Beach WWTP and the Northern Expressway road project) which saw activity rise 75% over the past two years. From 2012/13, BIS Shrapnel is forecasting another substantial upswing in civil work given the assumed commencement of a major expansion of the Olympic Dam mine. This will not only see a quantum lift in mining construction but will also drive investment in related infrastructure including ports, railways, roads, electricity and water. However, if the project does not proceed, South Australia can only expect weak growth, led by railways, mining and heavy industry, electricity and roads.”

Western Australia

“Western Australia is only expected to see flat growth in engineering construction in 2011/12 as completing projects (Pluto LNG, Sino Iron Ore and the Worsley alumina refinery expansion), and delays to the Oakajee projects, offset a ramp up of activity on the Gorgon LNG project and iron ore expansions. However, this should be followed by much stronger growth in the 2012-14 period as activity on LNG and iron ore expansions peak. The key risk for Western Australia in the short-to-medium term is the loss of skilled workers to support the coming boom in Queensland activity, particularly ‘fly-in/fly-out’ construction workforces.”

Tasmania

“Following a small decline in 2009/10, engineering construction activity in Tasmania is tipped to grow strongly over the coming three years, supported by roads, telecommunications (National Broadband Network), electricity (Musselroe and Cattle Hill wind farms) and heavy industry (Gunns pulp mill).”

Northern Territory

“Northern Territory activity is forecast to expand very strongly through the next five years driven by new oil and gas projects (Kitan and Crux fields), mining-related construction (encompassing rare earths, gold and base metals) and, importantly, the proposed Ichthys LNG development. If the LNG project proceeds, activity in the Northern Territory could rise to over $4 billion per annum, compared to $1.2 billion in 2009/10.”

Australian Capital Territory

“Engineering construction in the Australian Capital Territory is currently soaring on the back of the Cotter Dam and related water projects, as well as roads and NBN-related works. While growth is very strong now, activity will decline sharply again from 2012 as these projects move to completion, despite rising work on the NBN.”