Modulars under threat from mining tax

A RIPPLE effect from the federal government’s proposed super profits tax on mining is creating uncertainty in a transportable and modular building sector that is just tracking back to normal after the damaging impact of the global financial crisis.

Modular building stalwart Phil Guy, who is taking the reins as chief executive at Aussie Portables from June 1, said demand for modular housing in Western Australia was steadily recovering after tapering off significantly during the downturn.

“There was a very strong tailing off of demand, particularly with some of the larger entities scaling down their projects and putting a lot of projects on hold, but that demand curve is starting to rise,” Mr Guy said.

“But the impact of the potential mining tax is probably going to dampen demand again for a while, but I don’t think it will dampen it as much as the global financial crisis did, however if it does, it will only be short-term.”

Mr Guy has spent over 30 years in the modular housing industry and was instrumental in the ASX listing and exponential growth of Nomad Building Solutions from 2003 to 2009.

Ausco WA regional manager James Rowden agreed with Mr Guy that business had improved since a virtual shutdown of new mining operations during the financial crisis, but demand was not universally up across all sectors of modular building.

“It’s gradually picking up, business is gradually improving, our hire fleet is getting back to what it was 18 months, two years ago. Utilisations not quite where it was but it’s getting there,” Mr Rowden said.

“The installation is probably a little down, manufacturing-wise we’re back to pre-GFC levels … overall we’re probably about 70 per cent of where we should be.”

While the market is dominated in Western Australia by four major players - Nomad, Fleetwood Corporation, Ausco and Aussie Portables - a challenge in the market has emerged from Asia.

Nomad executive chairman Rick Blair said imported products were beginning to satisfy demand in the minesite accommodation sector, particularly on larger projects.

Mr Rowden said large accommodation villages at Barrow Island for Chevron’s Gorgon natural gas project, Gindalbie Metals’ camp at Karara, and BHP Billiton’s Porthaven camp were built using imported materials.

“We’ve seen that come in both from China and Thailand, so we are responding to the competition from that sector, and we’re monitoring the success of the imported products,” Mr Blair said.

“While there might have been some hiccups along the way, once the Chinese learn how to produce a quality product, they will produce it, and we will have to be one step ahead and produce a better quality product.

Mr Guy said the strong Australian dollar meant that importing modular building materials from China or Thailand for large-scale minesite accommodation jobs was a viable option for mining companies.

“Housing will always remain local because housing is difficult to build and ship, but standard type transportable accommodation units going to minesites is really the type of product that becomes attractive to have manufactured in China,” he said.

To combat the international competition, Mr Guy said Aussie Portables was exploring the plausibility of establishing its own manufacturing facility in China.

“We’re a great believer in local manufacturing, we want to protect it as much as we can, and for us to set up overseas is really just an addition to the existing business,” Mr Guy said.

“It’s certainly not dampening down the business we have, the business we have is strong, but there may be certain products that in order to be competitive we have to source from overseas.

“If we are going to source them from overseas then in a nutshell it might as well be to our standards, under our management systems, under our quality control and with as much of the income being returned to Western Australia as possible.”

Mr Blair said the next challenge for the industry would be to deal with a looming skills shortage.

“One of the difficulties going forward is we are getting much more sophisticated clients, which is lifting the bar for the skill set within our sector as well,” he said.

“That’s actually a good thing, but it means that overheads are going to continue to increase because we’re going to get much more technical people and with reliance on Building Council of Australia principles, having engineers and those sorts of staff will become standard practise in our business to compete with the engineers from a client’s point of view.”