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Investment Monitor Sept 2012: Summit approaching


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12 November 2012: Australia has enjoyed strong income growth as a result of rising global commodity prices, and that price growth sparked an unprecedented surge in mining investment.  But with global commodity prices now well down from their peaks, the first phase of the mining boom has passed.

As for the construction leg of the mining boom, the summit is now approaching.  Based on projects which are underway and committed, we are likely to see investment levels continue to rise in the short term.  Indeed, this issue of Investment Monitor has seen the value of investment projects under construction move higher over the past three months despite the difficult global environment.  However, this construction boom is likely to peak in 2014 as fewer projects move through planning over time to replace the large swathe of projects which will be completed.

The September 2012 issue of Investment Monitor saw the total value of projects in the database rise yet again.  The value of projects increased by $6.2 billion, or 0.7% from the June quarter, and has increased by a handy 3.7% over the past year.

However, with a lack of new resources projects, and some project cancellations, the value of projects in planning has fallen back over the past three months.  The value of projects in planning (classed as under consideration or possible) in the September quarter was $465.0 billion, a $10.6 billion fall compared to the June quarter.

While the quantum of projects in planning has moderated a little over the past year, some of those on the drawing board may be further from the green light now than they were three or six months ago, given the downturn in global commodity prices and concerns over China’s development path in the short term.

But that’s to the future.  The volume of mining work underway at present is still astounding – with a peak in activity still to be seen by early to mid-2014.

Economic infrastructure (covering transport, ports, energy, water and telecommunications projects) has a notable investment agenda underway, including the roll-out of the NBN and major energy, transport and port projects.  The latter will help to support an expected lift in export volumes over the medium term following the expansion of mine capacity, though some of these projects are also at risk in the current environment.

Non-residential building activity has been lacklustre, with no immediate prospects of being anything but.  This portion of the construction sector is on the wrong side of the two speed divide, with soft retail turnover, little white collar jobs growth, and weak business and consumer confidence providing a shaky foundation for ongoing investment.

Western Australia and Queensland still lead the way in terms of the value of projects in the Investment Monitor database.  Together the two States account for some 51% of projects.  In contrast, the share of projects contributed by New South Wales and Victoria continues to slide, now accounting for around 17% of total projects.  South Australia has also taken a notable hit to its investment portfolio over the quarter with the value of projects in the State falling from around 6% of the national total in the June quarter to 3% over the September quarter.

NB: See our media releases and research at www.deloitte.com.au.

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