BMI View: A number of leading indicators have painted a mixed picture of Australia’s construction industry over the first half of the year. While infrastructure appears to be holding up relatively well, residential and non-residential building – residential and commercial construction specifically – seems to be weak and getting worse. Overall, we are still expecting a slowdown to take hold, with growth of just 0.8% year-on-year (y-o-y) for the industry as a whole. Despite this weak near-term outlook, over the longer term (to 2015) we are more optimistic.
Key factors guiding our short-term outlook:
?? The value of construction work carried out in the first quarter of 2011 was weak in terms of quarter-on-quarter (q-o-q) activity, growing by just 0.7%. Non-residential construction was by far the worst performer, contracting significantly both q-o-q and y-o-y. Residential construction was also weak on a q-o-q basis, although it was strong y-o-y, indicating a mixed picture. Engineering work continued to grow strongly, especially y-o-y.
?? This growth scenario is reflected in the first quarter gross value added data. On a y-o-y basis, construction industry value grew by 7%, indicating robust activity; however the sector is definitely trending towards a slowdown, with q-o-q activity growing by just 1.2%.
?? The Performance of Construction Index (PCI) (compiled by the Australian Industry Group) contracted for the 13th consecutive month in June 2011. The index takes into account new orders, activity and employment in the sector. While declines in activity were felt across the board, construction of apartments was the worst performer, with engineering having the slowest rate of decline. New orders also reflect this trend, with residential and construction orders the worst affected. The best performing, in line with trends seen in other indicators, was engineering, which – despite also contracting – only witnessed a fourth month of consecutive decline.
While the figures for work carried out and industry value-added paint a mixed picture, with engineering (infrastructure) still performing well and the industry as a whole still growing, there will almost certainly be a slowdown in growth, with a contraction inevitable in residential and non-residential construction sector. The potential for growth over the coming months is undermined by the PCI data which shows new orders dropping off in the first half of 2011. This indicates that there will be less new projects starting construction and therefore little to sustain the industry over the short term.
Although short-term woes are weighing down on the industry as a whole, there are a couple of sectors which are currently outperforming. Transport infrastructure is perhaps the most dynamic sector in an industry which is seeing little in the way of contract awards. The key source of demand is the private sector, specifically the mining industry. This has proved a catalyst for demand for freight transport infrastructure, with the expansion of port capacity across Australia and the upgrading of rail track to cater for strong demand from China. Significant public sector spending plans for urban transport are also boosting opportunities in the sector; however, uncertainty over the level of commitment to these plans and the fiscal ability to fund projects is raising some questions.
Indeed, the infrastructure sector has outperformed the construction industry as a whole according to the PCI, and in terms of construction work carried out. We therefore believe the subsector will register stronger growth than the sector as a whole, with 3.4% forecast.
The residential and non residential building sector, however, is expected to underperform the construction sector as a whole, with -0.2% y-o-y growth predicted. With commercial and residential activity both experiencing weakness, we do not anticipate growth over the course of the year.

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Executive Summary 5
SWOT Analysis 7
Market Overview 8
Australia 8
Building Materials 9
Global Materials 9
Asia Overview 16
Table: Holcim Cement Price/Volume Variance – Asia 21
Industry Forecast Scenario 22
Table: Australia Construction And Infrastructure Industry Data, 2008-2015 22
Table: Australia Construction And Infrastructure Industry Data, 2012-2020 23
Construction And Infrastructure Forecast Scenario 26
Transport Infrastructure 29
Table: Australia Transport Infrastructure Industry Data, 2008-2015 29
Table: Australia Transport Infrastructure Industry Data, 2012-2020 31
Transport Infrastructure Forecast Scenario 33
Transport Infrastructure Overview 35
Table: Major Infrastructure Projects – Transport 36
Energy And Utilities Infrastructure 41
Table: Australia Energy And Utilities Infrastructure Industry Data, 2008-2015 41
Table: Australia Energy and Utilities Infrastructure Industry Data, 2012-2020 43
Energy And Utilities Infrastructure Forecast Scenario 45
Energy And Utilities Infrastructure Overview 46
Key Projects – Energy And Utilities 49
Table: Major Infrastructure Projects – Energy & Utilities 49
Residential/Non-Residential Construction and Social Infrastructure 52
Table: Australia Residential and Non-Residential Building Industry Data 52
Table: Australia Residential and Non-residential Building Industry Data 52
Residential/Non-Residential Construction Forecast Scenario 53
Residential/Non-Residential Construction and Social Infrastructure Overview 55
Major Projects Table – Residential/Non-Residential Construction and Social Infrastructure 58
Table: Major Infrastructure Projects – Residential/Non-Residential Construction And Social Infrastructure 58
Business Environment 59
Australia Business Environment 59
Rewards 59
Risks 59
Regional Overview 60
Developed States Infrastructure Business Environment Ratings 60
Developed States Infrastructure Risk/Reward Ratings 65
Company Monitor 66
WorleyParsons 66
Leighton Holdings 69
Global Overview 73
Methodology 81
Industry Forecasts 81
Construction Industry 82
Data Methodology 82
New Infrastructure Data Sub-sectors 82
Construction 83
Capital Investment 84
Construction Sector Employment 85
Infrastructure Business Environment Rating 86
Table: Infrastructure Business Environment Indicators 87
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