Deloitte’s latest mining services index declined 2.05 points over the first quarter compared to Q4 2013, while the benchmark ASX 200 increased 1.04 points.
The index is based on the market capitalisation of companies servicing the mining sector, and Deloitte financial advisory services partner Nicholas Harwood said the lower result showed firms were struggling with disruptive market pressures.
“March 2014 quarter index performance was characterised by interim results announcements from many participants, nearly half of whom reported profitability below guidance or market expectations,” he said.
“Many participants who reported earnings above expectations either benefitted from a diversified contract portfolio including projects outside the resources sector or they service niche sub-sectors.”
Harwood said managing costs and debt was even more important, and financers could look to introduce cash-backed guarantees to protect their investments.
“Cost agility has become a key to preserving growth, as the competitive tendering environment continues to depress margins and increase project lead times despite a solid pipeline of opportunities,” he said.
“A number of corporate failures in the sector may also lead to financiers reviewing the structure of performance guarantee facilities.”
Deloitte Access Economics partner Stephen Smith said a range of macroeconomic factors were disrupting Australia’s miners and, by extension, the services sector.
He said investment was falling and intentions were well down on the highs reached in mid-2011.
“Prices and export volumes for both iron ore and coking coal are certainly an issue, as is the well documented infrastructure construction cliff,”Smith said.
The index focuses on a number of mining services participants, including Leighton Holdings, which gained 24% in market capitalisation over the first quarter and partially offset losses from other firms.
Leighton accounts for 18.1% of the index, up from 13.5% at the end of 2013.
Monadelphous Group also enjoyed some positive developments after it announced $A680 million and $250 million worth of gas contracts in the Northern Territory and Queensland.
Deloitte said the company’s wins highlighted the benefits of diversification outside mining.
Holding top position on the index was Orica, which fell 8.9% over the quarter, while third placed Worley Parsons posted a 9.6% loss.
Even steeper falls came from Fleetwood Corporation, which fell 25.7% in market capitalisation to $153 million after softening workforce accommodation demand led to it abandoning plans for a 1000-person camp in Gladstone.
