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New infrastructure wave highlights industry challenges

Welcome back! In recent years, I’ve started the new year by examining the prevailing economic conditions and contemplating what they mean for the aggregates industry in the next 12 months.

Thanks to a mining boom that was in turn fuelled by the China boom and stimulus spending, Australia lived up to its reputation of being the “lucky country” a decade ago. “Luck” seems to be blessing us again. What’s encouraging for the quarrying sector now is that Australia is, according to various projections, entering another phase of major construction activity.

The International Monetary Fund has forecast national economic growth to rise by three per cent in 2018. Macromonitor, which collates transport construction data, has forecast $33 billion of spending on road and rail infrastructure projects in FY2018-19. Additional annual expenditure on these projects will keep the economy steady until as late as FY2024-25.

More recent projections by the Australian Industry Group (AiG) and Australian Constructors Association (ACA) indicate that an expanding pipeline of publically funded infrastructure projects will raise the value of turnover from all major construction work by 7.1 per cent for FY2017-18 (followed by expansion of 6.8 per cent in FY2018-19).

{{quote-A:R-W:300-Q:"What’s encouraging for the sector is that Australia is entering a new phase of construction activity."}}This will be fuelled by growth in projects for roads (up 21 per cent) and rail (up 20 per cent), and solid growth in telecommunications and pipelines infrastructure, and other civil projects (eg sporting complexes, bridges, construction of the second Sydney airport). An improving business environment will also support stronger privately funded building activity (eg accommodation, offices, industrial buildings).

As a result of rising infrastructure work, construction employment (comprising sub-contract tradespeople and on-site employees) is expected to increase in the period to June 2018 by 3.1 per cent. However, working against recruitment are skilled labour shortages.

Businesses reported “major” or “moderate” difficulty in recruiting skilled labour, including sub-contractors, in the six months to September 2017. Labour sourcing difficulties are only expected to intensify as more infrastructure works arise. Labour cost pressures will also increase as construction companies compete for the same pool of skilled labour.

Interestingly, the AiG/ACA outlook forecasts that higher commodity prices, coupled with a lift in demand due to the continuing rise in infrastructure investment activity, will push up the cost of construction materials. More than 45 per cent of construction businesses cited “major” or “moderate” increases on the costs of building materials in the six months to September 2017 (up nearly 22 per cent from March 2017).

This suggests that quarries may have to start preparing for a ramp up in production this year and into 2019 (if they’ve not already started) and to consider taking on extra skilled workers. This is the fillip that the construction materials industry has craved for years but there will be enormous challenges.

In turn, plant and equipment suppliers to the quarrying industry may also have to start reviewing their stocks. The AiG/ ACA outlook reported that nearly 32 per cent of construction businesses are experiencing difficulties with hiring or purchasing equipment, and this won’t abate between now and March.

After so many years of waiting, it appears the aggregate sector’s time to shine has come. The question is: Are you ready and equipped for the demand that lies ahead? And will you have the labour/expertise to meet demand? Exciting times await – but the work will be hard and arduous too.

Welcome to 2018!

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