Yellow goods market shows no sign of recovery

Monday 1 February 2016

  • Share
  • 46% drop in EY mining fleet value index
  • Opportunity for disruptive business models to exploit underutilisation
  • Construction segment improving

A “freefall” in values for yellow goods in the mining sector shows no sign of recovery in 2016, according to EY’s 2016 Australian Yellow Goods Report, released today.

EY’s Australian mining fleet value index declined 46% in the 12 months to 30 September 2015.

In contrast, the report notes there are signs of recovery in the construction segment of the yellow goods market in Australia, with an 8% recovery in the value of low hours/late model equipment in the 12 months to 30 September 2015.

EY’s analysis indicates auction clearance rates above 70% and generally improving valuations for construction and general purpose equipment, compared to auction clearance rates around 60% and generally declining valuations for mining-specific equipment.

EY Oceania Mining & Metals Transactions Leader, Paul Murphy, says the timing of any substantive recovery in the equipment market remains unclear and hinges on fortunes of the mining and mining services sectors.

“Further declines in commodity prices make it extremely unlikely the yellow goods market for mining equipment will see any recovery this year,” says Murphy.

However Murphy says that not all market forces are negative, with the low Australian dollar likely to attract overseas buyers and a reluctance of lenders and financiers to crystallise losses.

“There is increasing underutilization and assets are just being parked up, but provided there is some general servicing of interest, lenders and financiers are showing a lot more patience, rather than try and sell assets into a weak or non-existent market,” he says.

Murphy says it’s unlikely the majority of equipment from mines closed during 2015 has been put on the market, as many mines have gone to care and maintenance in the hope of sale rather than being closed.

“Values are at historical lows so for anyone with scale, the finances and nerve, there is the potential to opportunistically assemble a mining equipment fleet at once-in-a-lifetime prices,” he says.

“Disruptive business models to exploit underutilised capacity in the accommodation and people transportation industries have been a phenomenon. We have significant underutilisation in mining fleets and yellow goods more generally so the conditions are right for a disruptive business model to enter this space.”

A copy of the 2016 Australian Yellow Goods Report is available online at www.ey.com/au

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