Construction is Australia’s Largest Importing Industry

What products are imported by Construction?

 

 

The previous post on products used in Construction was based on the ABS supply-use table, which do not include imported products. However, the ABS input-output tables that the supply-use tables are based on have data on imports of product groups by industry groups, in the same matrix of 115 product groups by 64 industry groups. 

 

This post looks at the latest release of the input-output tables for 2022-23 for the four Construction industry groups of Residential building, Non-residential building, Heavy and civil engineering, and Construction services (the trades). The four industry groups are combined to get shares of total use of products by Construction.

 

The post first looks at imports by the Construction industry groups, and compares their shares of total imports to some other industry groups. The major products imported by Construction in 2022-23 are identified and the Construction share of those imports discussed. 

 

Comparing the share of imports over time is difficult, but there are a couple of measures that can be used. The ABS calculates Primary input content per $100 of final use by industry. Primary inputs are Imports, Compensation of employees, taxes and subsidies, and Gross operating surplus. This estimate includes the initial increase plus the direct and indirect effects. Another estimate from the share of imports in Total intermediate use of products uses the value of imports as a percent of the value of products produced in Australia and used in Construction.  

 

Construction accounts for 80 to 90% of imports of timber and wood products. A 2022 research report for the industry association Forest and Wood Products Australia analysed the demand for sawn softwood timber to 2050 and meeting that demand. The report’s data on imports is discussed.

 

Product Imports by Construction

 

When the four Construction industry groups are combined, their share of total imports in 2022-23 was 17.2%. This makes Construction by far the largest importing industry in Australia.

 

 

Table 1. Imports by Construction industry groups 2022-23

 

In 2022-23 the industry group that had the largest share of total imports was Construction services, at 9.6% it had more than twice the share of the next largest industry group of Road transport’s 3.7%, and three times the share of total imports of many other product groups. 

 

 

 

Table 2. Imports by industry groups 2022-23

 

 

 

Construction has very large shares of some product imports. In particular, for Sawmill and Other wood products the shares are 80 and 90% respectively. For Ceramic products, the Construction share  is 91%. There are several other product groups where Construction is 40 to 50% of imports, such as Iron and steel, Structural and Fabricated metal products, and Electrical equipment. There is a very high import share of 73% for Domestic appliances.

 

Table 3. Major products imported by Construction 2022-23

 

 

Comparison of 2022-23 Import Shares with 2012-13

 

Comparing the share of imports over time is difficult because the input-output tables are in current dollars and not adjusted for inflation. An accurate estimate requires not just local prices each year for each product, but also global prices for traded products and their cost in Australia including customs, insurance and freight. This data is not readily available. There are, however, a couple of measures that can be used

 

Each year the ABS calculates a figure for Primary input content per $100 of final use by industry. Primary inputs are Imports, Compensation of employees, taxes and subsidies, and Gross operating surplus. Final use is the total demand for a product. This estimate includes the initial increase plus the direct and indirect effects of an increase in an industry’s output as demand increases. Because it includes these second and third round multiplier effects it is not a measure of industry output.

 

It does, however, allow a comparison between years of the role of imports in Construction for the four industry groups, and since 2012-13 there has been an increase for all groups. Table 4 shows Non-residential building has had the largest increase of 4.5% since 2012-13. As an aside, in 2022-23, the average of the four Construction industry groups in Table 4 is 18.2%, close to Construction’s 17.2% share of total imports in Table 1.

 

Table 4. Import content of final use in Construction

 

 

Another approach is to use the share of imports in Total intermediate use of products, which is the value of imports as a percent of the value of products produced in Australia and used in Construction.  This is in Table 5, which shows the same trend as table 4, with increases in the import share for the four Construction industry groups, although in this case the largest increase is in Residential building. For Total construction the increase of 2% is equivalent to a 20% increase in imports.

 

Table 5. Imports percent of Australia products used in Construction

 

 

Figure 1. Imports Used in Construction

 

 

 

The increases in imports by the Construction industry groups in Tables 4 and 5 are reflected in the increases in the Construction share of imports of most of the major product groups, in Table 6. This generally reflects the decline of Australian manufacturing, as with Electrical equipment and Domestic appliances, but the increased imports of Sawmill and Wood products is due to demand outstripping local supply. Since 2012-13 there have been some declines, in Petroleum and coal products and Structural metal products for example, but for the majority of products there were increases.

 

Table 6. Major products, percent imported by Construction

 

 

 

Sawn Softwood Imports

 

A 2022 report for Forest and Wood Products Australia, an industry association, was on the Future Market Dynamics and Potential Impacts on Australian Timber Imports.  The report focused on the demand for sawn softwood timber and the challenges in meeting that demand. There is some data on imports and forecasts out to 2050 for demand, local supply and imported timber products. Demand for sawn softwood is primarily driven by the Australian housing industry. In 2002, the proportion of locally produced sawn softwood used for framing and structural purposes in Australian houses was 66.2%, but in 2021 the proportion had fallen to 50.4%. Sawn softwood production peaked at 3.746 million m3 in 2017-18, before the 2019 bushfires affected output.

 

The report argues global sawn softwood production has increased at 1.06% per year over the last 25 years and per capita production of sawn softwood has been falling. There is international competition for timber resources, limiting availability for Australian imports. In 2020-21, local production was 3.619 million m³ while demand was 4.566 million m³, and the gap between sawn softwood demand and local production is expected to widen because local sawn softwood annual production is static at 3.6 to 3.8 million m³. ​

 

Figure 2. Timber imports 2005-2021

 

 

The existing softwood plantation estate has not expanded significantly since the early 1990s, and was 1.028 million hectares in 2020. Projected average annual demand for sawn softwood from 2046 to 2050 is 6.5 million m³, with local production limited to 3.6 to 3.8 million m³ the projected gap is 2.6 million m³ by 2050, or 40.5% of total demand. 

 

The report finds Australia's timber imports would need to triple to meet the implied gap. However, global production and imports have been declining, making it unlikely they can fully meet Australian demand in the future, because there will be a significant increase by 2050 due to population growth. Up to 468,000 more hectares of softwood plantations would be needed to meet that demand.

 

 

Figure 3. Sawn Softwood Demand, Local Production and Implied Gap 2021–2050

 

Conclusion

 

It is not widely recognised that, of all Australian industries, Construction is by far the largest importer of products. Combining the four Construction industry groups of Residential building (3.3%), Non-residential building (2.3%), Heavy and civil engineering (2.1%) and Construction services (9.6%), Total Construction imports were 17.2% of total imports by value in 2022-23. The industry group with the largest share of products imported into Australia is Construction services, at 9.6% of total imports it is more than twice the second largest Road transport, with 3.7%.

 

Construction has very large shares of some product imports. For Sawmill and Other wood products the shares are 80 and 90% respectively, for Ceramic products, the share  is 91%, and for Domestic appliances imports are 73% of the value of products used.

 

The ABS calculates the import share for Construction of Primary inputs per $100 of final use by industry group. For Residential building this was 19.7%, for Non-residential building 20.2%, for Heavy and civil engineering 14.4% and for Construction services 18.5%. Since 2012-13 the import share of final inputs has increased by 4.5% for Non-residential building and by 1 to 2% for the other groups.

 

Another estimate is the share of imports in Total intermediate use of products, which is the value of imports as a percent of the value of products produced in Australia and used in Construction.  This has the same trend since 2012-13 as Primary inputs per $100, with increases in the import share for the four Construction industry groups, although in this case the largest increase was 3% in Residential building. For Total construction the increase of 2% is equivalent to a 20% increase in imports.

 

The significant role of imported products in Australian construction is not widely recognised, and has not been included in any of the recent reports on the industry. There could be two reasons for this lack of attention. The first is simple acceptance that manufacturing in Australia is too expensive, and lower cost imports have won market share. Closely allied to that is the idea of lack of scale, because the domestic market is too small to support globally competitive factories. There are other contributing factors like energy costs, which could be among the lowest in the world if most of our natural gas was available to local industry instead of being exported by foreign multinationals, or if sufficient solar energy had been built over the last decade. 

 

A second reason could be reluctance to highlight the lack of investment in capacity by Australian business and fund managers. This is most obvious in softwood plantations, where despite growing demand, the area planted in 2020 was the same as in 2000, while imports of sawn softwood used for framing and structural purposes have increased to over 50% of demand. A report for Forest and Wood Products Australia finds Australia's imports of sawn softwood would need to triple to 2.062 million m³ a year to meet projected demand. However, global production has been declining, making it unlikely imports can meet that demand.

 

The decline in Australian manufacturing is reflected in the increase in imported products used in Construction. While there are many reasons for this decline, fundamentally it is because of the strength of the Australian dollar from the high value of mining and resource exports. This is known as ‘Dutch disease’, after the hollowing out of Dutch manufacturing and agriculture after the 1959 discovery of the North Sea oil and gas fields led to an increase in gas exports that boosted the currency and made other exports uncompetitive. This has been the experience of Australia over the last couple of decades, as the boom in iron ore, coal and gas exports has reduced the competitiveness of other exports and import-competing industries.