Construction gains pace

Posted by Oil Tycoon

January 21, 2008

THE construction boom is gathering strength, with the value of work on the books doubling since the middle of 2006 to almost $50billion.

Huge new oil, gas and mining projects are competing with state government infrastructure projects for construction teams.

In June 2006, the value of work outstanding on state government infrastructure projects was just $5.9 billion. By the end of last September, this had soared to $13billion.

In the private sector, the start of work on Woodside’s $12 billion Pluto gas project in Western Australia has raised the value of contracts yet to be completed to $34.4 billion, up from $18.8 billion in the middle of 2006.

The construction industry is still gearing up for most of the new projects. The value of work actually completed on state government projects has been steady at between $4 billion and $4.5billion every quarter since December 2005.

States have found it difficult to assemble work teams for all the projects on their books.

The private sector, however, has raised its level of construction work, with the $8.3 billion completed in the September quarter marking a 22.6 per cent increase over the previous 12 months.

There is a large number of major resources projects that have either just been started or are about to be.

BHP Billiton is putting $2billion into the Pyrenees oil field off Western Australia, while the Chinese-owned company Citic Pacific Mining is about to start work on a $4.4 billion iron ore project. Rio Tinto is spending $2.1billion expanding its Yarwun alumina refinery at Gladstone in Queensland.

There is also a number of new coal projects, with the biggest competitor to BHP Billiton and Rio Tinto, Brazil’s giant CVRD, investing in several projects, including the Carborough Downs program in central Queensland.

The Bureau of Statistics survey shows that roads and water supply are receiving most of the new investment from state governments. The value of work outstanding on road projects rose from $2.6 billion in June 2006 to $5.5 billion at the end of September. There has also been a large lift in the value of bridge construction, which has risen from $400 million to $1.6 billion since mid-2006.

Investment in water projects soared from $458 million to $2.9billion over the same period, with a further $1 billion being spent on sewerage and drainage works.

However, some areas of infrastructure are missing out. There has been little change in the value of work being done on railways in the past three years. There has also been little growth in investment in electricity transmission or in harbours, although a $130million harbour project was started in the last September quarter.

The Australian Bureau of Statistics also reported yesterday that average import prices rose by only 0.2 per cent in the December quarter, despite a 13.9 per cent jump in imported fuel costs.

The strength of the Australian dollar not only kept a lid on import prices, but also pushed the average price of exports down 0.6per cent.

Commonwealth Bank economist John Peters noted imported consumer goods fell in price by 1.2 per cent in the quarter, and noted this would help to restrain growth in inflation. The December-quarter inflation figure, which will guide the Reserve Bank’s decision on interest rates at its February meeting, will be published next Wednesday.

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