In a recent post, we covered Ernst & Young's latest Australian Yellow Goods report which valued excavators, haul trucks, dozers and loaders in today's mining and construction current climate. So while there are recovery signs in construction, the mining sector tells a much bleaker story. Here are 11 reasons why. According to EY's report, the major influences on the market for and values of second-hand yellow goods have been:
- Sustained low commodity prices especially in iron ore and coal
- Increased low cost production of iron ore coming on stream impacting high cost producers (especially junior iron ore miners in WA and SA)
- Subsequent reduced demand for rental and contract fleet services
- Resultant over supply of second-hand equipment in the market place
Positive & Neutral
- Weakening Australia dollar (leading to reduction in volume of second-hand equipment entering Australian market from overseas)
- Reduced supply of imported second-hand equipment coming onto the market
- Emergence of US buyers in the market looking to break up equipment for resale as spares
- Speculative equipment buying by Middle Eastern buyers in anticipation of the removal of trade sanctions on Iran
- Major infrastructure construction projects either underway or expected
- Reduced supply of new equipment coming into the market
- An uptick in construction activity as at June 2015 which indicates the highest level of activity in over 12 months and 28% higher than in March 2015
The domino effect of commodity prices
Sustained low commodity prices, especially in iron ore and coal, have seen a number of mines being placed on care and maintenance. While overall product levels of iron ore have increased, EY confirms that these increases are mainly caused by the major high volume low cost producers.
This situation has placed significant pressure on smaller higher cost producers and has resulted in a significant reduction in the need for load and haul fleets. In turn, this has led to rental and contract fleet service contracts being terminated as well as owner miner fleets being either partially or wholly parked up.
It's estimated that anywhere between $600m and $1bn of equipment is currently unitilised and possibly significantly more. Alarmingly, one market participant reported an estimated 1,500 haul trucks idle in QLD alone.
If you're considering capacity utilisation strategies for your fleet, it's worthwhile to know what other equipment suppliers are saying. After all, you don't buy a car without knowing the specs and you don't see movies that friends have panned. Check out these case studies from a handful of our suppliers and discover more about solutions for your business.