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Quake throws lifeline to building industry

Monday 6th September 2010

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The 7.1 magnitude pre-dawn earthquake that shattered Christchurch may be the most significant economic disaster in recent history, but it will provide a much-needed lifeline for New Zealand’s beleaguered construction sector.

The industry has been poised on the brink of collapse, according to a New Zealand Institute of Economic Research report last week, with the effects of the global recession and the decline in the number of big projects being commissioned putting as many as 20,000 jobs on the line. 

“You don’t want to be seen to be making profit out of others misery, but this has definitely come at the right time for the construction industry,” said Craig Brown, a senior investment analyst at ING New Zealand. 

“Fletcher Building mentioned recently that there had been a hold on big projects with the completion of the stadiums, and that they were looking at a period of six to nine months where they didn’t have enough work to do to keep their people occupied and risked losing them to the likes of Australia,” he said. 

A preliminary analysis by Westpac Institutional Bank suggests the estimated $2 billion repair bill is the equivalent of 26% of New Zealand’s total annual construction expenditure. 

Fletcher Building’s chief executive Jonathan Ling said any benefits of residential and commercial rebuilding will be months away as people work through insurance process. 

“Real commercial and residential rebuild will be many years down the track,” Ling told BusinessDesk in an interview. He is expected to speak with Christchurch mayor Bob Parker this week to work out how Fletcher will be involved in the recovery efforts.

Shares in New Zealand’s biggest building company rose 3.9% to $8.05, having declined 10% so far this year. 

The knock on effect from the quake is expected to also benefit the likes of Steel & Tube Holdings, as demand for building materials spike. Steel & tube’s shares rose 5.9% to $2.33, and have declined about 23% so far this year. 

Steel & Tube said it was currently meeting to discuss what role it would play in Christchurch, and how safe it is for staff to work there. 

“It’s a bit premature to be asking that question” as to what it means for the business, said chief executive Dave Taylor.

“These companies will be able to meet the needs of the region – if you’d been a full capacity, these things would’ve been fairly more challenging,” said Rob Mercer, head of research at Forsyth Barr.

“There is a little bit of fiscal stimulus – we’ve got a fragile economic recovery, and you’d prefer to do it the normal way.” Much of the reconstruction is through existing infrastructure projects that have been brought forward. 

Lyttelton Port sustained significant structural damage to its wharf which is expected to cost “tens of millions of dollars” to repair, said chief executive Peter Davie. However major container, coal and oil operations have been restored. The shares haven’t yet traded today and were last at $2.40

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