EY’s landmark Yellow Goods Report has this year found tightening demand for mining and construction equipment and labour.
“While we have not returned to mining boom territory, we are seeing a tightening for key goods such as tyres, which was a real pain-point during the last boom,” said Scott Grimley, EY Oceania Mining & Metals Leader.
Yellow Goods – a term for construction, earth-moving and quarrying equipment, including trucks and tractors – are considered a key economic indicator globally.
Analysis of auction results indicate that the value of the Australian mining fleet value index has increased by 7.5% since December 2016.
Mr Grimley said strong demand for yellow goods, with lead times for larger equipment items extending to 12-24 months, points to global demand for key commodities such as coal and iron ore.
“The yellow goods market is an indication of the health of the Chinese economy, and other manufacturing economies, which rely on these commodities,” Mr Grimley said.
“Such is the demand, older and refurbished equipment that previously was difficult to sell, is once again selling,” he added.
The demand for older equipment benefits some workers. Extending the operating life of equipment requires additional skilled labour for maintenance – but the trends comes at the cost of productivity.
Demand is also being driven from large government infrastructure projects including Badgery’s Creek Airport, Sydney Metro, WestConnex, Melbourne Metro, Victorian level crossing removals, North East Link, Inland Rail, Cross River Rail and the Bruce Highway Upgrade Program.
Mr Grimley said hire fleet owners have indicated utilisation rates are improving, and edging back to levels last seen five years ago.
“While the demand points to a strong economy, it creates headaches in business for those in procurement who are responsible for managing the supply of labour, equipment, and spares.
“Electrification is more common, where a shift from diesel is expected to yield improvements, particularly for underground mining operations. Drilling rigs are an example where technological advances can be implemented by most players. This includes autonomous drills that can improve safety and productivity,” he added.
EY Oceania Mining & Metals Transaction Leader, Paul Murphy, says despite good conditions generally, access to credit is proving difficult at the smaller end, with smaller mining and mining services businesses struggling to access debt funding for equipment on terms that are attractive.
“Access to credit is looming large for mining services companies, with smaller operators facing limited appetite from the big four banks,” Mr Murphy said.
On the transaction front, Mr Murphy said most deals are being driven by the need of diversification across geography, commodity and service provided, scale or acquiring technology and digital plays improving the performance and efficiency of assets.
“We expect to finally see consolidation in the mining services sector, similar to the consolidation of oil field services businesses, driven by the need for larger scale enterprises to invest in technology and requiring significantly more capital relative to the past.
“Conditions have changed considerably with market power swinging from the miners, back to hire fleet owners, who are able to negotiate better terms,” he added.
“With the mining services sector returning profit we anticipate an uptick in transactions as strategic growth becomes a priority,” Mr Murphy added.