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Industries set to fall in 2015

12 January, 2015

As Australian companies enter the new year, there are a few industries for which 2015 may well turn out to be annus horribilis.

Petroleum exploration is tipped to be the biggest loser in 2015 as oil prices plunge, while mining and construction machinery manufacturing and electricity distribution are all expected to endure a less-than-stellar year.

Petroleum exploration

The world price of crude oil is plummeting due to an enormous supply glut spurred by overproduction from members of OPEC, the US and Russia. The severe crash in oil prices means that the investment returns available from petroleum exploration activities are drastically reduced.

Electricity distribution

The cost of retail energy has surged over the past five years. Earlier projections of continued growth in electricity use per capita and rising peak demand led the industry to gold-plate electricity networks, and the Australian Energy Regulator (AER) allowed fees to rise to cover capital costs. A subsequent decline in the use of centrally generated electricity means there is a surplus of network capacity.

The AER has slashed revenue limits in NSW and Tasmania, as consumers have been paying for networks' overinvestment. This is expected to result in an overall industry revenue decline of 10.0 per cent in 2015.

"The AER has cut revenue limits substantially for the three networks operating in New South Wales for 2015-16 – in some cases, by over 30.0 per cent when compared with 2014-15," said IBISWorld Senior Industry Analyst David Whytcross.

"Similarly, Aurora Energy in Tasmania suffered a regulated revenue cut that will hit the industry in 2015."

Whytcross added the industry is further threatened by the increased use of small-scale electricity generation through solar photovoltaic panels, which could reduce demand for distribution networks as consumers go off the grid.

Mining and construction machinery manufacturing

Demand for mining machinery has been driven by investment in new mines, along with mine expansion projects.

Mining companies are expected to revise down their expectations of revenue growth during 2015, as the prices of commodities like iron ore have plunged.

Demand for mining machinery is expected to fall as a result, leading to a forecast revenue decline of 6.1 per cent over 2015.

"The development of new mines, and the expansion of existing mines, generally requires mining firms to purchase new machinery, leading to revenue growth for mining machinery manufacturers," Whytcross said.

"As the mining boom moves from its investment phase to a production phase, and as falling iron ore prices deter further investment, demand for machinery is likely to suffer in 2015."

Read: Industries set to fly in 2015