Contractors in areas such as mechanical, electrical and equipment servicing are set to grab billions of dollars’ worth of opportunity as expenditure on maintenance and servicing of mining, oil and gas facilities grows by 60 percent in real terms over the next five years, the latest forecast suggests.
In its Mining in Australia 2017-2032 report, BIS Oxford Economics says it expects the dollar value of expenditure on maintenance of resource facilities to increase from $7.1 billion per annum in 2016/17 to $12.0 billion per annum in 2021/22.
In real (inflation adjusted) terms, BIS says this equates to a rise of 60 percent over the period.
Leading the way will be oil and gas, where BIS expects maintenance activity to triple.
Work will also be strong in areas such as iron, gold, copper, lead, zinc and bauxite and even coal – where existing mines are being ‘dusted off’.
Adrian Hart, Associate Director of Construction, Maintenance and Mining at BIS, says growth will be driven by two factors.
First, massive levels of investment in new mine development has expanded the size of the asset base which needs to be maintained.
This will continue to be the case in oil and gas as mega projects such as Wheatstone, Ichthys and Prelude come online.
Second, maintenance activity has been curtailed over recent years as low commodity prices forced miners to slash outflows.
This has led to a backlog which firms are now looking to address with prices having recovered.
“Over the last few years, we have been ramping up production as we benefit from that mining investment boom,” Hart said.
“But we have been squeezing maintenance.”
“Typically, you expect to see maintenance rise in a production boom. You are driving assets, you are sweating them hard, you are generating output. Generally, that means maintenance as well.”
“But we didn’t really see that. We saw very tight conditions where low commodity prices kept expenditure in cheque in a range of operation areas. Maintenance was really hit hard.”
“What’s happened (now) is that the price rise has given miners breathing room to say, ‘let’s get back on track with some of this maintenance we ought to be doing.”
The forecasts come as recovering commodity prices underpin an improving resource sector outlook more generally.
Having dropped by more than half between 2012 and late 2015, prices in the RBA Index of Commodity Prices have since bounced back and are around 30 percent above this low point.
In its report, BIS says conditions across the sector will improve.
It says production will rise by about 28 percent over the next five years whilst exploration activity will increase from $2.9 billion per annum to $4.0 billion per annum.
The forecaster did not include Adani’s $16 billion Carmichael coal project in its numbers.
This, it said, was unlikely to proceed in light of a subdued long-term outlook for steaming coal, high development costs and risks in obtaining finance.
Hart said negative stories about mining were oversold.
He said economies throughout the US and Europe were improving whilst China and India were going strong.
“For years, we have been talking about the mining investment downturn and weaker economic growth for Australia because of it,” Hart said.
“Really, the story is now that we have passed the bottom. A lot of commodities are on the rise again, there is a new narrative in mining that is more about ‘yes, we are starting to grow again in production, maintenance and investment …’”
“… It’s a positive for the industry and it is underwritten by global growth.”