The upside of rock bottom

Belt tightening among Western Australia’s mining equipment hire operations, miners and mining contractors is pushing record volumes of used yellow equipment into auction yards.

Industry insiders suggest the hire operations are cutting their inventory by as much as 30 per cent in a bid to reduce costs.

It’s sparked talk of consolidation as the hire price for some machinery languishes at more than 30 per cent below the peak levels.

As reported in Business News online last week, Smith Broughton had its best ever auction in September, raising $14.3 million under the hammer.

And the volumes are expected to continue to grow as major projects reach completion, including the rail line for Roy Hill.

Smith Broughton has put its auctions on to a monthly rotation to keep up with the volume of big yellow machines rolling into the yard.

BHP Billiton is understood to have already offloaded a lot of its surplus machinery, as have many of the hire businesses.

Analysts agree the most exposed operators in the hire game are the smaller, WA businesses that borrowed heavily to expand at the peak of the market.

Businesses such as listed operator Emeco and Australia’s largest, privately owned heavy earthmoving equipment supplier, Orionstone, have the advantage of being able to move equipment between states and even overseas.

Emeco managing director Ken Lewsey said he was optimistic about the outlook but acknowledged margins were low across the sector.

Utilisation rates for Emeco’s equipment have recovered from the lows of 40 per cent in October 2013 and are back over 60 per cent.

However Mr Lewsey was coy about any plans to take advantage of the soft conditions to grow Emeco through acquisition other than to say he was “open to these ideas”.

Despite the difficult trading conditions, Orionstone is understood to be buying some new equipment to reposition its WA business and capitalise on the civil work on the horizon.

Its diversified business model means it’s less reliant on the mining sector and potentially able to pick up new work on major infrastructure projects while commodity prices are low.