AUSTRALIA'S infrastructure and mining construction boom will end in the next two years as the mining investment cycle weakened, according to research house and forecaster BIS Shrapnel.
The warning coincides with Treasurer Peter Costello's assessment that investment in the mining industry needs no further incentives, following execution of an agreement this week which could pave the way for uranium sales to China.
"We are really at the sharp end of the cycle at the moment and investment is very, very strong," he said.
"I think we've got about $30 billion of new investment going in mining, this is as you would expect with prices strong."
Engineering construction activity topped $31 billion last financial year after posting growth of 60 per cent during the past four years and is expected to jump to $36 billion over the next two years.
BIS Shrapnel economist and study leader Adrian Hart believed the boom could last for another three years in Queensland, though, on the back of the resource sector's expansion and development of complementary rail, port and water infrastructure projects.
In fact two of Queensland leading engineering companies Sedgman and Ausenco hope to exploit the boom by raising some $60 million before the end of June through separate public floats valuing them at more than $200 million.
But Mr Hart predicted the onset of a relatively mild downturn between 2008 and 2010 when minerals investment and public works project activity was expected to turn down in the state.
"The downturn could be worse, however, if several key infrastructure projects such as the $1.3 billion second stage expansion of the Comalco alumina refinery, the development of the Aurukun bauxite deposits, or the second stage of TransApex tunnel scheme (the Airport Link) are delayed," he said.
Although the immediate outlook remained positive with sector activity expected to rise a further 15 per cent this financial year, investors could well feel pain sooner amid warnings that the resource sector was already in bubble territory.
Junior uranium stocks have clearly overheated amid speculation about the potential earnings bonanza to be reaped by selling yellowcake to China, India and Taiwan.
However, seasoned market watcher Marcus Padley warned in his Marcus Today investor newsletter yesterday that massive overnight gains in resource sector stalwarts BHP Billiton and Rio Tinto signalled that the time had come to take profits.
"It looks like the rest of the world just woke up to the Australian uranium agreements with the Chinese and the comments from China that they will not interfere with iron ore price negotiations," Mr Padley noted.
"As one colleague comments this morning, when BHP rises 15 per cent in a month and then 4 per cent in a day the train is arriving at the station. We have travelled already. Better to travel than arrive.
"Another observes that when stock prices are moving on a daily basis by amounts you would be happy with over months then boom has turned to bubble and its getting dangerous."
Although the market pulled back on profit-taking late in the day BHP still closed up 35¢ at $29.25 after trading as high as $29.79 while Rio gained just 2¢ to finish at $79.69 after earlier hitting $81.05.
The shares rose on the back of strong overnight gains in metal prices and the revelation that both BHP Billiton and Rio subsidiary ERA had reportedly signed uranium supply deals with Taiwanese nuclear power generator Taipower.
As for uranium, Federal Treasurer Peter Costello warned yesterday that Canberra may invoke constitutional powers to override state Labor government objections to uranium mining unless the ALP ditched its anachronistic "three mines" policy.
Queensland's peak representative body for the minerals and energy sector yesterday welcomed Premier Peter Beattie's subsequent announcement that the current ban on uranium mining in the state could be reversed under a change in Federal ALP policy.
Queensland Resources Council Chief Executive Michael Roche said mounting evidence that the ALP's leadership was moving away from its no new mines uranium policy was welcome news for the resources sector and regional Queensland.
BIS Shrapnel's Mr Hart said engineering sector growth over the next two years would be driven by more large resources projects getting under way as well as a strong upswing in public sector infrastructure construction.
"However, BIS Shrapnel cautions that the strong growth in construction activity is placing increasing pressure on construction costs, which may see some projects drop out over the next few years," he said.
"The current extraordinary wave of exuberance in mining and heavy industry construction will almost necessarily be followed by a slump.
"Over time, as supply ramps up prices will wind back and this will sow the seeds of the next downturn in the cycle."
BHP Price at posting:
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