Industry consultants Ernst and Young, in its 2016 Australian Yellow Goods Report, have confirmed that "values for yellow goods [large excavators, large haul trucks, small haul trucks, dozers and loaders] in the mining sector have continued to freefall over the last 12 months on the back of minimal demand and significant supply". However, there appears to be a light at the end of the tunnel for the construction and general purpose sector.
Their analysis indicates auction clearance rates in excess of 70% and generally improving valuations for construction and general purpose equipment compared to auction clearance rates around 60% and generally declining valuations for mining equipment.
The key industry takeaways of the report include:
Declining yellow goods market supply
The overhang of stock available for sale has reduced since September 2015 (although up from the low in March 2015). EY suggested that it's likely that the reduction in supply is due to both a narrowing of the valuation gap between the expectations of buyers and sellers and a reduction in overall supply as those who can bear the burden of holding costs to do so in the hope of a recovery in values.
Recovery signs in construction
Our analysis indicates that there are signs of a recovery in the construction segment of the yellow goods market:
- 8% recovery in the value of low hours/late model equipment between September 2014 and September 2015 (however an overall 7% fall in values since September 2013)
- Values for higher hours equipment have remained steady between September 2014 and September 2015 (however values remain 15% lower than in September 2013)
Mining segment in decline
Due to the significant fall in commodity prices, the story in the mining segment is much bleaker:
- 30% fall in the value of low hours/late model equipment from September 2014 to September 2015 (and a total 37% fall in values since September 2013)
- 22% fall in the value of higher hours equipment from September 2014 to September 2015 (and a total 41% fall in values since September 2013)
- Index decline of 46% over the past 12 months for the value of a notional mid-tier mining fleet (20 haul trucks, 3 excavators, 2 wheel loaders, 3 dozers) and total fall of 64% since the index was established in September 2013
Given the decline in commodity prices for bulk operations like iron ore and coal, it's no surprise that there's reduced demand and increased supply for that fleet compared two or three years ago.
Head of metals and mining with EY for the Oceania region, Paul Murphy confirmed "the value of specialised mining fleet equipment fell more than equipment that can be redeployed to use in other areas such as civil construction or quarry."
Where to from here?
- Continued slumps in coal and iron ore prices will have a negative impact on higher cost producers. The report goes so far as to say "any recovery in them mining segment is now a long way off".
- Lower AUD/USD cross rates will likely see second-hand equipment become more attractive to overseas purchasers
- Extended periods of weakness will eventually, in the distant future, start to have positive impact on the market. Delayed capital expenditure decisions will need to be addressed, providing potential for improvement in both new and second-hand markets for yellow goods.
- Construction/general purpose segment of yellow goods market will continue to out-perform the mining segment given the relative strength of the construction industry
ABC Rural reports that disruptive technologies are wreaking massive changes on existing sectors. Paul Murphy believes that same lateral thinking could be applied to use of the idle mining fleet.
"The market for this second hand equipment is one where there is over-capacity now and into the foreseeable future.
"So if you just look at the cases of Uber and Airbnb and other models, they're about capacity utilisation.
"So whether in cars or accommodation there was available capacity that wasn't being used. And we've got exactly the same situation here."
It would be very difficult not to end this post by saying ... we're already here. And we've got some 2,500 suppliers, over 700,000 items for hire and $100 million in awarded work through PlantMiner to prove it.
If you're interested in getting your gear out of the yard and building your online presence, register for a totally obligation-free demo or give our team a call on 1300 550 434 and see how PlantMiner can grow your business.