Business Monitor International (BMI) has predicted a slight slowdown in the Australian infrastructure sector in part due to constriction in the mining sector.
The outlook for Australia’s commodities sector remains weak, which will have a knock-on effect on mining-related construction activity. With the Australian mining sector heavily dependent on China, cooling demand from China due to a structural rebalancing in the country’s economy will see Australia suffer the painful spillover effects of a sharp investment slowdown, BMI reports. Chinese authorities are undertaking a series of reforms which include the government cracking down on commodity financing deals, which have reportedly provided some support for industrial commodities such as copper, aluminium and iron ore.
This decline in demand is prompting Australian businesses that are exposed to Chinese commodities to be cautious with their capital expenditure plans. Rio Tinto, one of the major miners in Australia, had announced in December 2013 that it planned to cut its capital expenditure by 20% y/y, from slightly less than US$14 billion in 2013 to approximately US$8 billion in 2015. BHP Billiton also announced in 2013 that it will lift its iron ore exports in Western Australia over the medium term, but will reduce its capital spending on other segments of its business by 25% to US$16.2 billion in 2014. The latest data from the ABS shows that the project pipeline in the engineering construction sector has been shrinking since 2012, particularly for the oil, gas, coal and other minerals segment.
Adapted from a report by Emma McAleavey.
Source: BMI