NAB has a new note out that rather upsets the happy RBA argument that Australia faces a kind and gentle decline in mining investment. According the bank:
The recent capex and exploration expectations data suggest that mining investment may be approaching a turning point. A decline is inevitable: the question is when and how fast.
On the basis of past engineering construction commencements, there are reasons to believe that there is a risk of a decline in 2014 big enough to take 2% points off GDP growth in that year unless another “mega” project starts soon. Lower levels of bulk commodity prices are also likely to be positive for the underlying trend in mining project commencements.
If mining investment retreats spectacularly in 2014, non-mining investment will need to fill the gap quickly if employment growth is to be maintained.
There are only two mega-projects left on the books, Browse and Arrow LNG. Shell has already said it is delaying both. I believe Browse is still a chance to go ahead but not as a terrestrial project. The Browse partners clearly want to use floating LNG, which will actually mean an investment in Korea not Australia (because it supplies the floating behemoth that does the mining). Arrow is less likely again.
So, my base case is that neither of these projects will go ahead in any “mega-project” sense and therefore that the cliff is real. This is one report you should read in full.