The Yellow Goods indicator is showing a surge in Australia’s mining industry

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  • EY’s Yellow Goods Report — tracking availability of construction and earth moving equipment — shows mining and construction labour is getting harder to access in Australia.
  • And supply of key goods such as tyres, a pain-point during the last boom, is tightening.
  • The data points to a lift in the mining industry.

EY’s Yellow Goods Report — tracking availability of construction and earth moving equipment — has found tightening demand for mining and construction equipment and labour in Australia.

“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,” says 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 the value of the Australian mining fleet value index has increased by 7.5% since December 2016.

Other indicators also show increasing demand for mine workers and rising commodity prices.

PwC’s 12th Aussie Mine Report, which analyses the 50 biggest ASX-listed mining companies with market values under $5 billion (MT50), shows overall market capitalisation up 28% to $58.7 billion.

EY’s Grimley says strong demand for yellow goods, with lead times for larger equipment items extending to between 12 and 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,” says Grimley.

“Such is the demand, older and refurbished equipment that previously was difficult to sell, is once again selling.”

The demand for older equipment benefits some workers. Extending the operating life of equipment needs 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.

Grimley says 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 says.

However, EY Oceania Mining & Metals Transaction Leader, Paul Murphy, says access to credit is proving difficult with smaller mining and mining services businesses struggling to access debt funding for equipment.

“Access to credit is looming large for mining services companies, with smaller operators facing limited appetite from the big four banks,” says Murphy.

He expects to 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 says.

“With the mining services sector returning profit we anticipate an uptick in transactions as strategic growth becomes a priority.”