October 2017

Putting METS under the microscope

  • By Ric Gros, CEO, METS Ignited

Australia’s resources industry is world-renowned for its size, scope and competitiveness. METS Ignited – an industry-led growth centre supported by the Australian Government – recently completed research into the significant contribution made by the mining equipment, technology and services (METS) sector. The results have demonstrated that the Australian METS sector is a powerhouse.

In the past ten years, Australia has seen an unprecedented increase in mining capacity.

On the back of the construction boom, production has doubled for thermal and metallurgical coal, doubled for bauxite and alumina, and tripled for iron ore. There has also been a 30 per cent increase in aluminium production and Australia became the leading producer of lithium.

In the background, Australia’s mining equipment, technology and services (METS) industry has not only kept pace, it has thrived.

The sector is driving new and innovative approaches to help develop the sector and deliver enormous productivity improvements across all commodities, and in the process establish a global reputation for innovation.

In a landmark report, The Australian METS Sector – its Economic Contribution and Demographics, METS Ignited has taken the first steps to quantify, year-on-year, the size, scope and demographics of this highly innovative sector of the economy.

The findings offer a deep insight into one of Australia’s most advanced and complex industries and will support informed policy making, highlighting the historical importance of the sector and the future opportunities to the Australian economy.

METS at a glance

The overall Australian METS sector generated $86.2 billion gross value add (GVA) – or five per cent – to the Australian economy in 2014-15.

While the sector peaked at $128 billion GVA at the top of the construction boom, it has continued to grow, almost doubling in size from the estimated $44 billion GVA in 2005-06.

Today, the METS sector supports over half a million local jobs, and the industry continues to build with a sustained average growth of close to seven per cent (Trading Economics, 2017), far outstripping the average growth of the Australian economy.

For the research, the Australian METS sector was defined as consisting of the supply of goods and services to the mining extraction industry:

  • from both direct and indirect suppliers
  • both specialised and non-specialised goods and services
  • to both Australian mining extraction and exports to foreign mining extraction industries.

The definition excluded supply to the oil and gas industry and supply to minerals processing, except where basic processing occurs at the mine site.

The report notes that the METS industry continues to expand its use of outsourcing and subcontracting, with end solutions presented to miners often comprising a multiplicity of services from further up the value chain. A decision to truncate the definition of METS companies to final direct suppliers would ignore key market realities, with a sizeable economic contribution made by indirect suppliers.

METS Ignited has also elected to include specialised and non-specialised suppliers. In part, the inclusion of all goods and services required in the mining sector provides the broadest view of the mining services industry. The decision is also influenced by practical considerations. It can be very difficult to discern specialised suppliers from non-specialised, because often these services can be provided by the same company.

Using these parameters, The Australian METS Sector report provides a clear, industry-led distinction about the nature and types of companies that are considered within the METS industry. The report represents a significant leap in formalising the sector to tailor policies and actions towards a defined and quantifiable group of companies.

Sector definition and segmentation – a world first

The METS sector is multifaceted and broad by nature. Companies service multiple elements of the life cycle of projects from early exploration to feasibility, design, construction, production, sustainable development and, ultimately, closure and rehabilitation.

Each facet deals with highly-specific industry problems that require solutions developed from multiple companies, often in collaboration and representing a very broad set of skills and capabilities.

The companies’ capabilities can be as varied as engineering and process design, software development, virtual simulation, automation and robotics, sampling and analysis, contract mining, safety training, environmental management and water treatment.

The diversity of specialisation has, historically, presented a challenge for industry analysis, with the historical method of using Australian New Zealand Standard Industrial Classification (ANZSIC) codes to estimate the GVA of a sector proving inadequate.

In 2012, Austmine conducted the ‘METS survey’, which raised the profile of the sector and provided great insight into its scale and diversity. This initial work was refined in the following years and supplemented by the work by Deloitte and the Minerals Council of Australia. While these reports provided great industry insight at a point in time, the respective methodologies did not allow for sustainable regular reporting.

METS Ignited, with the assistance of Alphabeta and the Office of the Chief Economist, has built on these studies. A new economic model has been developed that is able to leverage Australian Bureau of Statistic and Business Longitudinal Analysis Data Environment (BLADE) data to report on a regular and sustainable manner and in a way that can inform policy.

This form of GVA reporting of the METS sector is a world first.

METS industry segments insights

The ‘specialised METS sector’ represents $43.3 billion of the the $86 billion, and the balance $42.9 billion is represented by the non-specialised services required by the industry.

The figures are an important reminder that while mining operations are a powerful driver of economic wealth, the flow-on effects are far more than tax revenue and commodity exports. Mining has the power to spark an entire industry, giving opportunity to METS companies to continue to develop innovative solutions that not only support local industry but in fact become significant growth export opportunities.

With clear definitions in place, The Australian METS Sector report identifies that there are nine industry segments, which encompass at least 40 subindustries that provide specialised goods and services to the mining industry – each one vital to major projects. The list of subindustries is diverse, covering everything from water supply to construction services, equipment hire and training, and software development.

Their respective descriptions and metrics are outlined below.

Construction

  • Segment size ($GVA): $8.1 billion
  • GVA percentage of specialised METS: 19 per cent
  • Jobs: 44 000
  • Per cent of specialised METS jobs: 13 per cent.

The construction segment is the largest specialised METS segment, with limited export performance. It is comprised of subindustries such as:

  • land development and subdivision
  • site preparation services
  • concreting services
  • construction services
  • hire of construction machinery with operator
  • road and bridge construction.

Professional and technical services

  • Segment size ($GVA): $8.0 billion
  • GVA percentage of specialised METS: 18 per cent
  • Jobs: 68 000
  • Per cent of specialised METS jobs: 22 per cent.

The professional and technical services segment is the second largest specialised METS segment and the sector’s largest employer. It is comprised of service subindustries such as:

  • surveying and mapping
  • engineering design and consulting
  • scientific testing and analysis
  • scientific research
  • technical and vocational education and training other specialised design.

Technical equipment manufacturing

  • Segment size ($GVA): $6.9 billion
  • GVA percentage of specialised METS: 16 per cent
  • Jobs: 58 000
  • Per cent of specialised METS jobs: 18 per cent.

The technical equipment manufacturing segment is the third largest specialised METS segment, with high export intensity. It is comprised of manufacturing subindustries such as:

  • electric cable and wire
  • professional and scientific equipment
  • communication equipment
  • electronic equipment
  • computer and office equipment
  • machine tools and parts
  • pump and compressor.

Contract mining (including exploration)

  • Segment size ($GVA): $5.5 billion
  • GVA percentage of specialised METS: 13 per cent
  • Jobs: 36 000
  • Per cent of specialised METS jobs: 11 per cent.

The contract mining segment is the fourth largest specialised METS segment, with low export performance. It is comprised of subindustries such as:

  • mineral exploration
  • mining support services
  • motor vehicle and transport equipment rental and hiring
  • heavy machinery and scaffolding rental and hiring
  • other goods and equipment rental and hiring.

Transport services

  • Segment size ($GVA): $4.4 billion
  • GVA percentage of specialised METS: ten per cent
  • Jobs: 28 000
  • Per cent of specialised METS jobs: nine per cent.

The transport services segment is the fifth largest specialised METS segment, with medium export intensity. It is comprised of service subindustries such as:

  • air and space transport
  • rail freight transport
  • stevedoring services
  • pipeline transport
  • water freight transport
  • freight forwarding services
  • road freight transport
  • port and water terminal operations.

Basic equipment manufacturing

  • Segment size ($GVA): $3.6 billion
  • GVA percentage of specialised METS: eight per cent
  • Jobs: 31 000
  • Per cent of specialised METS jobs: 11 per cent.

The basic equipment manufacturing segment is the sixth largest specialised METS segment, with high export intensity. It is comprised of manufacturing subindustries such as:

  • natural rubber product
  • iron and steel casting
  • adhesives and polymers
  • rigid and semi-rigid polymers
  • spring and wire products
  • metal containers
  • adhesives
  • structural steel.

Wholesale trade

  • Segment size ($GVA): $3.6 billion
  • GVA percentage of specialised METS: eight per cent
  • Jobs: 23 000
  • Per cent of specialised METS jobs: seven per cent.

The wholesale trade segment is the sixth largest specialised METS segment, with medium export intensity. It is comprised of wholesaling subindustries such as:

  • industrial and agricultural chemical products
  • plumbing goods
  • other hardware goods
  • professional and scientific goods
  • computer and peripheral goods
  • electrical and electronic goods.

ICT services

  • Segment size ($GVA): $1.6 billion
  • GVA percentage of specialised METS: four per cent
  • Jobs: 8000

Per cent of specialised METS jobs: three per cent.

The ICT services segment is the eighth largest specialised METS segment, with low export performance. It is comprised of service subindustries such as:

  • internet publishing and broadcasting
  • data processing and web hosting services
  • electronic information storage services
  • other information services
  • wired telecommunications network operation.

Other services

  • Segment size ($GVA): $1.5 billion
  • GVA percentage of specialised METS: four per cent
  • Jobs: 18 000
  • Per cent of specialised METS jobs: six per cent.

The other services segment is the smallest specialised METS segment and has little to no export activity. It is comprised of service subindustries such as:

  • electronic and precision equipment repair
  • machinery and equipment maintenance
  • other waste collection service
  • waste treatment and disposal
  • water supply
  • sewerage and drainage services.

The Australian METS Sector report has identified the industry segments and their respective characteristics, contribution and growth trends. The report highlights the emerging growth industries and the quality of the jobs created.

Growth in the sector by segments is directly linked to demand for the product and service through each of the mine development facets.

The largest capital spend occurs during construction, with products that are required as part of establishing infrastructure only likely to have very limited demand outside of this facet (eg road construction).

Nevertheless, many other industrial products go on through the construction stage to become part of the ongoing supply needs. These can be in many cases ‘consumables’ such as roof bolts, hydraulic hoses and valves and tyres.

As the mining industry continues to develop, all the facets are in play simultaneously, and they range from exploration, scoping, feasibility, design, construction, product and rehabilitation.

While construction represented the largest contributor on a $GVA basis at $8.1 billion in 2014-15, it also reflects the largest volatility in the sector. The construction segment GVA peaked at $17.1 billion in 2011-12.

There has been enormous growth in the professional and technical services segment. This sector is 2.6 times larger than in 2005-06, with jobs growth from 25 000 to 68 000. All of the growth development segments are leveraging innovation, leading-edge technologies and are global exporters.

This group also has enormous export potential and growth opportunities. While they benefited from the feasibility, design and construction boom, these sectors delivered a net 94 000 new jobs between 2005-06 and 2011-12.

Construction-related jobs, on the other extreme, have more than halved since the peak of 2011-12, reaching 93 000. Construction over the same 2005-06 to 2011-12 period has nevertheless delivered 15 000 extra jobs growing from 28 000 to 44 000.

The Australian METS Sector report shows the METS sector exports are worth $3.6 billion to the Australian economy. The technical equipment manufacturing segment is responsible for 21 per cent of these exports, with scientific, computer and electronic equipment manufacturing driving international demand.

Of importance to the Australian economy are exports emerging from the basic equipment manufacturing segment. Large amounts of non-ferrous metal manufacturing are assisting the segment to account for approximately 19 per cent of all METS industry exports. Basic equipment manufacturing is closely followed by the transport industry segment. Rail and road transport products and services assist the segment in contributing 14 per cent of the METS industry’s exports.

The findings in the report are critical to understanding and continuing support in the METS sector. Through the provision of better quality and regular information, METS Ignited is able to establish an accurate portrayal of the industry, helping quantify the impact of growth measures and providing evidence where necessary when growth is not as strong as predicted.

In addition, through identifying industry segments and subsectors, it is possible to develop approaches to align various and radically different stakeholders to garner different perspectives on innovation and collaboration.

Finally, through these findings, METS Ignited will be able to develop some key performance indicators that will lead the conversation on the health of the industry. These sets of data will ensure it is better able to accelerate growth by informing stakeholders and key decision-makers in government.

The METS Ignited Industry Growth Centre plays a critical role in assisting the METS sector to accelerate the commercialisation of innovation both in Australia and internationally. Vital to that role is understanding and quantifying the segments that make up the METS industry in Australia and the value of their contribution to the economy through local business, exports and jobs. This report provides the METS sector with a clear understanding of its footprint and importance to the Australian economy.

It is a sector which we now know sits strongly amongst Australia’s top ten industries.

Reference

Trading Economics, 2017. Australia GDP Growth Rate [online]. Available from: https://tradingeconomics.com/australia/gdp-growth.

Feature image: Parilov/Shutterstock.com.

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