Whoa! Did the mining boom just peak?

By Leith van Onselen

The ABS has just released data on the value of construction work done for the December quarter of 2012, which registered a seasonally-adjusted -0.1% fall in total construction activity over the December quarter but a 11.9% increase over the year. Analysts had expected a 1.5% increase over the quarter.

The fall in overall construction activity was driven by a sharp decline in engineering construction, which fell by -1.3% over the quarter. By contrast, building construction increased by 1.8% (see below charts).

Western Australia drove the fall in construction activity, registering an -8% decline over the quarter, most likely driven by a fall in engineering (mining) construction activity. However, Western Australia’s fall was mostly offset by large increases in Victoria (+5%) and the Norther Territory (+29%).

Overall, the data suggests that the mining investment boom that has powered the Australian economy might have peaked. While this has so far been offset by increased building activity (including housing construction), doubts remain over whether housing will be able to fill the void should the slowdown in engineering (mining) construction gather pace.

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Comments

    • Today’s data well reflects two factors imo: immediate response to dramatic fall in io price 09/12 (suspension of activity in a number of areas) simultaneous with effective completion of a number of projects.

  1. Good result for the RBA with the pick up in resi building.

    A welcome increase in building in Victoria as well, seems to reflected a little in the local mood as well.

  2. What you have to look forwards to “New Zealand recorded a trade deficit in January, reflecting a larger-than-expected decline in exports led by dairy products, while imports rose.” Our dairy products are your iron ore….How is the dollar going to be allowed to fall in those circumstances? It’s all that’s keeping the consumer lead economy afloat….( and yes, local product manufacture/ substitution will occur with a lower dollar, but that takes time. Time a lower dollar, tomorrow, doesn’t give either of us)

  3. Diogenes the CynicMEMBER

    Anecdote – Perth engineer mates are all running behind their “budgets,” and another has said overtime has been canned and a few contractors let go. That says peak has passed.

    Of course there could be a lot of extra construction repair work in 1Q/2Q if Rusty does the business.

    • I know of one large engineering firm that has most of its staff down to four day weeks until “things pick up”.

      Remarkable.

  4. Forrest GumpMEMBER

    Yes Mining has definitely peaked and we are now on the downswing.

    The stages of the mining boom are as follows:
    stage 1. FEED Engineering (0.5-1 year)
    stage 2. Detailed Design (1-2 years)
    stage 3. Construction. (1-2 years)

    Since October last year, the incoming stage 1 works dried up. In essence there are no new mines or expansions being planned. (There are some minor exceptions)

    The FEED is the beginning of the process and without this, stages 2 and 3 above cannot exist.

    Whats currently happening is there are still a number of projects that are in either stage 2 or in stage 3 being construction, BUT there is no new work coming down the pipe.

    This results in stages 2 (engineering) and eventually stage 3 (Construction) drying up.

    This is now evident.

    What the “experts” fail to recognize is that its not the mining boom that generates the jobs. Its the design and building of the infrastructure that generates the jobs.

    It may take 500 people to build the rail line from the mine site to the port over a 2 year period (no to mention the associated service contractors and suppliers that provide all the ancillary engineering and components) BUT after completion, the 500 workers are gone and are replaced by 3 train drivers.

    The same can be said for the building of the mining infrastructure such as the conveyors, ship loaders and the port. There are literally 10’s of thousands of people engaged in the design and construction of these assets. BUT on completion they are replaced by 1 person that operates the conveyor and 1 person that operates the ship loader.

    To summarize this: There are no more expansions planned (unless the price & demand for Iron ore rises substantially). This means a displaced workforce of around 30,000 – 50,000 people encompassing the engineers, construction workers and ancillary business that support these functions.

    Expect a change in the work environment over the remaining 12 months to 2 years of the balance of construction work. This will not be pretty.

    • I definitely agree that the employment mix and longevity is poorly understand by “experts”, something I have commented on previously.

      An extrapolation of this lack of understanding is evidenced by calls for mining companies to train tradespeople etc when the fact is it is ridiculous to train for peak construction employment because of the very nature of construction – and the fact that most of this work is contracted out by the miners to mining services/engineering companies.

      In terms of construction staff, generally a very mobile workforce, engineering and design less so. The gradual reduction of projects on hand is probably also part of the RBAs grand plan to gently usher the housing market forward – a combined end to both would be a disaster.

      We might need a renewed mining boom 😉

    • Hi FG,

      Thanks for your post. Can you please let me know where I can find info about Stage 1 (FEED) that you mentioned? Seems like a good early indicator. Thanks.

    • Thank you for providing an estimate of the loss of employment you expect from the transition from construction to production phases.

      This is what I have been after for many months.

      Over say 3 years that is say 13-14,000 jobs per annum.

      In a workforce of 11,541,000 that is a very small number to accomodate.

      42,000 would be 0.37% over 3 years, or 2 if you prefer.

      14,000 pa would be 0.123% of the workforce each year for 3 years or 21,000 would be 0.195% of the workforce per annum for 2 years.

      Let’s face it, while loss of job or big decline in income is potentially devastating for a proportion of the individuals involved, the Australian economy could easily absorb those numbers and more, especially if housing construction picks back up a bit.

      It highlights the fact that the mining industry is not a particularly big employer, and a very small employer compared to it’s production.

      Much of the value goes offshore before the mine even starts in PV terms in plant and equipment bought. Then more of the value goes offshore in interest payments and dividends as production ramps up.

      When production starts the royalty payments will allow state governments to stop reducing public services and maybe increase them.

      The GDP effect might be big but even then it fails to measure the loss of the asset of in-situ ore and (in some cases) the farm land rendered non-productive.

      • “It highlights the fact that the mining industry is not a particularly big employer, and a very small employer compared to it’s production.”

        I’m not sure that the RBA agrees:

        “We estimate that the resource economy accounted for around 18 per cent of gross value added (GVA) in 2011/12, which is double its share of the economy in 2003/04. Of this, the resource extraction sector – which we define to include the mining industry and resource-specific manufacturing – directly accounted for 11½ per cent of GVA. The remaining 6½ per cent of GVA can be attributed to the value added of industries that provide inputs to resource extraction and investment, such as business services, construction, transport and manufacturing. This ‘resource-related’ activity is significantly more labour intensive than resource extraction, accounting for an estimated 6¾ per cent of total employment in 2011/12, compared with 3¼ per cent for the resource extraction sector.

        Note, I haven’t read the paper, just the abstract. But it seems to suggest that nearly 10% of employment is mining related.

      • 12% of WA workforce full time directly employed in mining. About 10 in construction (much mining related?).

      • Thanks for extract.

        Would you care to do an alternate analysis of the likely employment/wage changes?

        If we have a dramatic increase in unemployment then the housing market is at real risk, if not then, imo, it’s a slow melt in real terms.

        So my interest is in the changes to employment (even over unemployment, but unless there is rapid population or demographic change they are very closely connected) and which demographic is most affected by the change.

        If 63 year olds retire or go on unemployment the impact is less significant in a macro sense but if 20-30 employment reduces by 30% that is potentially very impactful economically (including on those that actually retain their jobs and socially) and has different and, I expect, greater flow through effects.

      • The WADSD used to provide construction/permanent jobs per project data – I think they have recently changed format but you may be able to locate. I think it is generally accepted that mining only is a modest employer, mining infrastructure construction related activity is the boon.

      • I will read it in full, but I note that:
        “However, most of the new jobs created in mining have not been filled by the local workforce. Further, most of the new jobs created in mining have not been filled by workers coming from other states. We can see this from the chart which shows annual net migration into WA from overseas and from interstate. The extent of the rise in overseas migration from 2004 to 2009 is clearly very large – an increase of more than 225% over this 5 year period! There is no doubt that a large proportion of the new jobs have been filled by overseas migration.”

        So if those workers must leave as visas expire then the unemployment impact in Australia might not be so great.

        She also says:
        “So in answer to the questions about the effects of the mining boom on employment in WA, it has clearly created many jobs. While it has taken some labour from other sectors, and some from other states, a large proportion of the labour has come from overseas migration.”

        Unfortunately there doesn’t seem to be a breakdown into temporary immigration where much of the workforce leave Australia and permanent immigration where they are likely to become unemployed in Australia.

        I hope Treasury and the RBA are doing some modeling of the employment effects in Australia of the unwind from now until say 2018 (2.5 year wind back, 2.5 years post the new normal after the wind back).

  5. Looking at the charts it looks like normal volatility to me.

    The value of construction / Engineering has always been volatile in WA due to lumpy resource construction s-curves and that one or two projects can skew the numbers.

  6. I’ve only just signed up after reading all your comments….
    I feel a little stupid after in commenting after reading all your terms/wording… But I’ll leave one anyway 🙂
    The majority of comments I have read in this thread are basically saying our boom has somewhat ended.
    I myself am a dual ticked tradesman in the engineering field ,workshop/mining and offshore.
    I’m hoping I don’t get laughed out of this thread but let me say Australia has plenty of up and coming work in the making in mining and offshore which in turn workshops get a peice of the pie also.

    • Hi ryanoceross.

      Mining will not end, it will go on till kingdom come. However, mining investment booms always end and the number of jobs in the industry tends to fall away significantly. It requires far more people to build new mining/resource infrastructure than it does to run it once it’s complete.

      As a fourth-generation resident of resource town, I’ve seen the cycle of boom and bust before (I don’t work in resources but I have many friends and relatives who do). At this stage, it looks likely that the mining investment boom will begin winding down this year. Once this occurs, mining sector jobs will not all just cease to exist but they will begin to erode – perhaps slowly, perhaps quickly, I don’t think we can be certain.