Transport, NBN to Drive Engineering Construction Turnaround

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Monday, May 2nd, 2016
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Beneath the pull-back in oil and gas projects, an underlying turnaround in the engineering construction sector in Australia is set to begin from 2016/17, the latest forecasts suggest.

Releasing its latest 14-year forecast for engineering construction activity in Australia, industry research firm BIS Shrapnel says that overall, the total annual value of work done throughout the sector will plummet 44 per cent from its peak of $130 billion in 2012/13 to a low point of $73 billion by 2018/19.

Strip out the impact of oil and gas projects, however – 13 of which worth a combined value of $211 billion are drawing toward completion – and the bottom of the cycle will actually be brought forward to 2017, with overall levels of activity set to rise by 11 per cent thereon after for the rest of the decade.

Leading the charge is the transport sector, where high levels of activity are being bolstered by road and rail projects in the eastern states.

In particular, the outlook for road-based construction is extremely positive as this sector receives strong support from the federal government’s $50 billion splurge on a read-heavy package of transport projects as well as from the Western Sydney Infrastructure Program to support the development of Sydney’s second airport at Badgerys Creek along with multi-billion private sector projects in New South Wales and Victoria.

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Over the longer term, however, arguably the biggest sector to drive growth forward will in fact be railways, which BIS expects to more than double over the next five years amid what has been decades of underinvestment in passenger and freight networks and a massive pipeline of projects including Sydney Metro, South East Light Rail (Sydney), the Forrestfield Rail Link (WA) and Victoria’s Melbourne Metro along with federally funded ARTC Inland Rail and ARTC projects.

Momentum is also expected to continue in telecommunications. Activity in that sector has risen 25 percent over the past two years thanks to the roll-out of the NBN.

The latest forecasts come amid an ongoing debate about the long term future of Australian cities.

Prime Minister Malcolm Turnbull says he wants ’30 minute cities’ where residents can ‘get to work, to university, to school, to whatever they want to do, within 30 minutes.’

The forecasts also follow the release of a long-term infrastructure plan by Infrastructure Australia in which IA called for a raft of changes, including linking state and territory government funding to the delivery of national reform objectives.

Nevertheless, Adrian Hart, senior manager of BIS’s infrastructure and mining unit, warned that beyond New South Wales and Victoria, other states which are suffering more from the resources slowdown and that other states such as Queensland, South Australia and Western Australia are taking longer to catch up.

Hart says it is important to look beyond oil and gas to the broader picture across the spectrum of civil construction sectors.

“Yes, resources-related engineering construction activity will continue to fall sharply,” he said. “But the importance of the decline from here for local construction companies and suppliers can easily be overstated as the construction figures include the value of large LNG modules fabricated offshore and integrated onsite using minimal domestic labour and materials.

“What is more exciting for the Australian engineering construction market is the imminent recovery in publicly-funded infrastructure investment.”

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