Australian Construction Outlook

Ai Group’s Australian Construction Outlook report, which is conducted in association with the Australian Constructors Association, the peak industry body representing the nation’s major construction contractors, is one of the most highly regarded reports on conditions in the nation’s construction sector. The survey is conducted on a bi-annual basis and provides an excellent barometer on the state of the engineering and non-residential building sectors – on a national and key market basis.

The Australian Construction Outlook report (undertaken in MAY 2012) is based on the responses of 100 companies employing almost 60,000 persons with combined turnover of almost $30 billion or approximately 30% of total industry activity.

KEY FINDINGS

■ Australia’s leading construction companies are projecting strong growth in the value of total non-residential building activity over the course of 2012 and 2013. The main driver of growth will be the resources sector. Both mining and heavy industrial resource based construction are forecast to expand at annual rates of plus 20% in 2012 and 2013. However, businesses are facing increased pressures in the procurement of building materials and capital equipment and, more significantly, widespread skill shortage bottlenecks. These supply constraints are exerting upward pressure on input costs.

■ The latest Australian Industry Group/Australian Constructors Association Construction Outlook survey reveals that after experiencing growth of 8.2% in 2011 (current prices), businesses expect the value of total engineering and commercial construction work to expand by 14.7% in 2012, with similarly solid growth (13.8%) forecast in 2013.

■ Engineering construction is expected to drive growth with total turnover increasing by 17.1% in 2012 and 15.4% in 2013 underpinned by mining investment and the strong pipeline of heavy industrial projects, led by oil and gas processing. This will be backed by strong support from transport infrastructure, electrical power generation projects and mining-related “other” civil projects, such as port upgrades and terminals. Telecommunications is also set to increase solidly due to the roll-out of the National Broadband Network (NBN).

■ While commercial construction is expected to continue to struggle, activity is forecast to gain some momentum over the next two years. With more projects starting to receive the go ahead, the total value of  commercial work is forecast to recover moderately from a 6.0% decline in 2011 to increase by 6.1% in 2012 and a further 7.2% in 2013.

CONSTRUCTION TURNOVER – AUSTRALIA

OUTLOOK BY MAIN SECTOR AT A GLANCE TO 2013

OUTLOOK 2012

■ Growth in total turnover from construction work is forecast to rise at a rate of 14.7% (current dollars) in 2012, following an increase of 8.2% in the previous year.

■ Mining infrastructure work is forecast to underpin the industry’s solid growth outlook with an increase of 25.5% expected in 2012. The impact of strong resources investment is further reflected in a projected increase of 19.9% in heavy industrial construction, led by “other” downstream mineral processing plants (+29.2%) and the oil and gas processing sector (+14.8%).

■ Infrastructure activity is also expected to be a major driver of growth with large transport projects, resources infrastructure and the NBN supporting higher activity levels. Solid increases are expected in both road (+10.9%) and rail projects (+31.7%). Other key infrastructure growth areas include telecommunications (13.8%), electricity generation and supply projects (10.3%) and other civil projects (+11.0%), the latter

category reflecting construction on port projects to boost commodity export capacity.

■ After declining in 2011, the value of commercial construction work is expected to expand by 6.1% in 2012.

OUTLOOK 2013

■ The total value of construction turnover is forecast to register further solid growth of 13.8% in 2013 as a high volume of major projects continue to progress through the development pipeline to the construction stage.

■ With strong investment in new mine capacity set to continue, the value of mining construction is projected to maintain strong growth, with a rise of 24.7% expected in 2013.

■ The outlook for heavy industrial construction in 2013 will be again be dominated by a high level of growth (35.2%) projected in oil and gas processing projects (consistent with the continued strong medium term growth expected in Australia’s LNG exports) and “other” downstream mineral processing plants (+24.3%).

■ The infrastructure market is forecast to continue expand at a solid rate of 9.5%. Rail projects (+17.9%) constitute a key prospective growth area, backed by electricity generation & supply (+10.8%) and transmission and telecommunications (16.0%). Ports/terminals construction is also expected to remain strong, as reflected in the solid growth in other civil projects of 12.1%.

■ Prospects are for a slight step up in growth to 7.2% in turnover generated from commercial construction activity. Private sector building activity is expected to rise by 7.1% while investment in new hospitals and other health care facilities is likely to underpin the 7.4% growth outlook for public sector building activity.

Jim Vaughan

Chief Executive Officer