Before the 2013 federal election, then opposition leader Tony Abbott promised to be an ‘infrastructure Prime Minister.’
Abbott may no longer be in charge, but Australia is going through a road and rail building boom nonetheless. In 2017/18, BIX Oxford Economics expects the dollar value of construction work done on road projects to come in at $6.7 billion (In 2015/16 constant prices) – more than triple the $1.9 billion recorded as recently as 2014/15. In rail, BIS expects activity ($3.5 billion) in 2017/18 to be almost three times levels seen as recently as 2015/16.
Furthermore, whilst road construction is expected to reach its peak in the current financial year, a multi-year boom now underway in rail is not expected to peak until 2023/24. By that time, BIS reckons annual rail construction output will have hit $6.2 billion. Moreover, road construction itself will remain at historically elevated levels of between $4.7 billion and $6.1 billion annually (2015/16 constant prices) until at least financial year 2022/23.
BIS associated director of construction, maintenance and mining Adrian Hart says road construction activity fell in the early part of the decade as several toll road projects struck financial difficulty.
Over the past two years, however, the sector has entered a boom phase as state and federal governments have backed massive urban road projects to complement regional road works.
Even more interesting, however is rail. Whilst Australia has underinvested in rail for a long time, this area is now seeing massive amounts of state money through asset recycling funds going into big metro projects in Sydney and Melbourne Moreover, the federal government also switched focus away from roads and toward rail through the 2017/18 budget, which included equity for inland rail as well as a $10 billion national rail program.
This, Hart says, was a significant change.
“The federal government under Malcolm Turnbull has switched its focused from roads to rail,” he said.
“That makes is a very different world from when Tony Abbott was prime minister. They are really looking at ways of development some infrastructure in the rail space – not just freight but to increase the productivity and efficiency of passenger rail.”
New South Wales and Queensland are leading for roads. Thanks to work on a range of projects such as the Pacific Highway, Princes Highway, WestConnex and NorthConnex, road construction work in New South Wales has shot up by 46 per cent over the past two years. In Queensland, meanwhile, activity rose 24 per cent last financial year on the back of federally supported projects such as the Toowoomba Range Second Crossing and Ipswich Motorway as well as now state/local government projects such as Gateway Upgrade North and Kingston Smith Drive.
Whilst these states will peak in around 2019, after that will come Victoria, where activity will surge from around $3.2 billion last financial year to more than $5 billion by the early 2020s. Major projects for Victoria include the West Gate Tunnel project, and later on, NorthEast Link. Other projects include work on the Western Ring Road and the Western Highway duplications.
Flatter activity is anticipated for Western Australia and South Australia. WA cancelled Perth FreightLink Stage 2 but still has Northlink. Unlike NSW and Victoria, WA has not proceeded with asset sales. The state also has crippling debt. South Australia has ongoing work with the North-South Coridoor.
In rail, New South Wales and Victoria will enjoy high levels of activity courtesy of Sydney Metro, Sydney Light Rail and the Melbourne Metro Project. Queensland will pick up later as the Cross River Rail Project gets underway and more expensive parts of the inland rail project come online.
According to Hart, a range of parties will benefit. Having been battling for work and forced to endure cut-throat margins following the winding up of the resource sector investment boom, civil contractors will finally enjoy a greater range of projects to choose from and opportunities to build fair prices into their bids. Materials suppliers in areas such as concrete and aggregates will also do well – Boral has noted that is stretched to meet demand. Heavy machinery and equipment suppliers, as well, are finally experiencing stronger demand.
Whilst the activity growth is welcome, all this will impact prices. Having been stagnant for three years prior, ABS data suggests that road and bridge construction costs jumped 3.7 per cent in calendar 2017.
Thus far, Hart says much of this reflects higher oil prices. As at March 2, these stood at $61.14 per barrel having previously been as low as $29.78 in late 2015. This is driving costs not just of fuel and equipment but also materials such as bitumen.
Furthermore, Hart says domestic cost pressures will build as difficulty in securing good foremen, site managers engineers and tradespeople/labourers drives up labour costs and pressures on quarries to supply massive metropolitan rail works pushes up material costs.
Australia is undergoing a boom in road and rail construction.
With luck, this will not only benefit contractors and equipment suppliers but also help to boost the efficiency and productivity of our broader economy.