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Deloitte: Mega-resources investment projects endangered?

By Rob Starr, Content Manager,

The investment projects which accounted for much of Australian economic growth in recent years are hurtling towards a peak, likely in late 2013. The December 2012 issue of Investment Monitor saw the total value of projects in the database rise yet again.  The value of projects increased by $26.9 billion – that’s a 2.9% jump from the September quarter, and a solid 4.5% higher than a year ago.  This is despite some high profile cancellations and a number of large projects moving into the production phase.  However, much of the rise in project values has again been from cost revisions, including a $9 billion blow-out for the Gorgon LNG project.

For now the investment boom is led very much by mining projects.  There is still a significant quantity of mining investment projects in the pipeline, though not as many mega projects stand ready to replace the current suite of projects as they reach completion.  The mining sector also faces some key challenges heading into 2013, as capacity constraints manifest into high labour and capital costs, and recent volatility in commodity prices threaten the returns for some projects.

The soft pace of growth in retail turnover and employment growth (including white-collar employment growth) means non residential building activity is performing far less strongly.  However, there are signs that the pipeline of potential projects is strengthening, and the RBA’s cuts to interest rates should help to stimulate demand for commercial building. This should benefit investment projects.

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