Mining, Property and Retail Outlook for 2014

Posted by Michael Derin

Published on January 29, 2014 under Tax

Azure Group clients come from a wide range of industry sectors, each navigating their individual market fluctuation and challenges. This month we are focusing on three core industries and examining the outlook for these sectors as we settle into 2014.

Mining Outlook

It appears the mining sector will continue to face a challenging market in 2014. There is an anticipated reduction in capital expenditure in new mining ventures over the next 3 years (forecast to fall from a previous estimate of $312 billion to $280 billion from this year to 2016). 

This will likely have a major impact on the Australian economy over this period. Other factors such as rising costs, falling commodity prices, supply/demand imbalances, and decreased productivity levels will also contribute to the challenging times ahead. However, those companies that embrace new forms of innovation can perhaps cushion some of the impact and position themselves for future growth.

On an international scale, as China begins to level out its high growth rates, key commodities such as iron ore and coal threaten to tip into over supply. Costs are continuing to escalate globally, and is resulting in falling share prices, decreasing revenues and profits, and rising debt levels, with gold miners particularly impacted.

It will present a bigger challenge for service providers to the major miners, particularly those focused on exploration and infrastructure building contracts.

There are also challenges for start up miners to raise capital and undertake exploration.

With such extreme conditions in this sector, there is a need for extreme change to take place to buffer the impact. The following structural changes are vital to consider implementing to stay afloat:

  • Engaging in sustainable cost reduction
  • Focusing on productivity and returns on shareholder value
  • “Right-sizing” capital projects
  • Taking advantage of modular construction and embracing new forms of innovation.
  • New approaches for dealing with local communities, governments and regulatory bodies.

The general message is that a change in mindset is vital – one that’s open to innovation and one that is open to the fact that perhaps past methods may not continue to see success in the current climate.

Property Outlook

In 2013, the Australian property scene saw a significant growth in property investment. It could be said that a number of factors have contributed to this grown:

  • Improved business and investment confidence
  • Low interest rates supporting new home owners entering the market
  • Reducing AUD that encourage international investment
  • Rise of SMSF investment in residential property

Australian investment properties attracted increased levels of capital both by local investors and international investors. The owner-occupier environment did not perform as well and there is a hope that this will pick up in 2014.

Looking across the board on a national level the following trends have been forecast for 2014:

  • Due to flat/ or falling rents, owner-occupiers will likely focus their energies on cost cutting.
  • Global economic conditions are predicted to improve, with major developed markets likely to expand simultaneously. This will have a positive effect on the Australian economy, injecting more confidence in the property sector.
  • The housing market is starting to stabilise and as a result consumer confidence is increasing which will have a flow on effect to other sectors.
  • Consumer confidence will then drive business confidence – finally encouraging the move from high levels of saving to spending which will have a positive impact on the Australia economy all round.

Retail Outlook

The retail sector was very much in ‘survival mode’ during the 2013 Christmas period, with the online retail space proving to be a continual challenge for traditional retailers. There was, however, an improvement in retail spending during the festive season compared to what it was fairing mid-year.

The retail sector, like the economy as a whole, has been up and down in 2013. However, low interest rates, a relatively lower AUD, and a post-federal election increase in consumer confidence have all positively impacted on the retail space, making 2014 appear less gloomy at this stage.

Recent Australian Bureau of Statistics data has showed retail spending rose by a seasonally adjusted 0.5 per cent to $22.3 billion in October, building on the 0.9 per cent growth in the previous month.

Australian retailers have also improved their online presence in 2013 and, combined with the lower exchange rate this will see a fundamental shift in how retailers do business in the digital age.

Azure Group will endeavour to provide updates regarding continuing trends within these sectors throughout the year. If you do have any concerns about how these trends will likely affect your own situation please do not hesitate to contact the Azure Group team on ourteam@azuregroup.com.au

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