14/11/2017 - 09:49

Cautious optimism on civil construction

14/11/2017 - 09:49

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Civil infrastructure work in WA is expected to stabilise at around $6.5 billion a year, underpinning renewed optimism in the sector, the Civil Contractors Federation WA has found.

Aubin Grove Station opened earlier this year. Photo: Georgiou Group

Civil infrastructure work in Western Australia is expected to stabilise at around $6.5 billion a year, underpinning renewed optimism in the sector, the Civil Contractors Federation WA has found.

The CCF's ‘2018 Western Australian Infrastructure Report’, released last week, was the third in what is now an annual series.

Chief executive Jeff Miller said CCF’s members had responded positively to the report, saying there was a thirst for more information on the outlook for civil construction.

“The first report, released in 2015, painted a fairly gloomy picture as the industry struggled to adjust in the aftermath of the boom," he said.

"And last year’s report also warned of a continuing decline, so it’s pleasing this year to have some relatively good news to report.

“We have noticed a general sense of renewed optimism in the industry over the past few months, and it’s great to see the data confirming this.”

The report, prepared with consulting group BIS Oxford Economics, includes a listing of about 100 major projects, each worth more than $50 million, spanning government infrastructure, mining and petroleum.

It found government infrastructure spending would be crucial in the coming years as a key driver of economic diversity and growth.

“If the state is to continue to reverse the post-boom decline, it’s vital that investment in productivity-boosting economic infrastructure is maintained at the current level or higher,” Mr Miller said.

BIS Oxford Economics associate director Adrian Hart said the positive news for contractors and suppliers to the civil construction industry in WA was that the worst was now behind them.

He said growth was rebalancing, and the construction industry had taken steps to reduce excess capacity.

“But growth in demand and construction activity is not expected to rise spectacularly either,” Mr Hart said.

“Rather, investment, construction activity and economic growth are likely to remain soft for the next two years in WA as the excess supply of housing and commercial space is gradually absorbed and the state government takes steps to improve budget finances.”

The report found civil infrastructure work done in WA was $6.8 billion in 2016-17 – down from a peak of $19.2 billion during the resources boom.

While the McGowan government has highlighted its Metronet rail package as a key development for WA, this will not translate to a big spike in spending.

The report found transport construction activity will stay between $3.1 billion and $3.3 billion per annum.

Growth in electricity construction is forecast to be relatively flat, with some renewables generation projects offsetting further falls in networks activity.

In the water sector, the state government’s program of network renewals and extensions will continue to provide steady opportunities for contractors, while sewerage construction activity is expected to be relatively buoyant.

Telecommunications construction work done surged 38 per cent to $1.3 billion during 2016-17 but is expected to decline sharply over the next few years as the National Broadband Network rollout moves past peak phases.

Mining and heavy industry construction fell 37 per cent in 2016-17 as work officially concluded on Chevron’s Gorgon LNG project and other mining construction settled at a 12-year trough.

Oil and gas construction is expected to fall a further $10 billion over the next two years as Wheatstone and Prelude, among other large projects, are completed.

However, this is expected to have modest local impact as much of the recent spending has been on LNG modules fabricated overseas.

Looking ahead, the report found that WA engineering construction - excluding oil and gas construction – is expected to rise through the next five years.

Initially this growth will be focused in publicly funded civil construction markets such as telecommunications, roads and railways, but will eventually extend into mining and heavy industry construction as commodity prices and depletions at existing mines underwrite the next round of resources projects.

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