Which Australian industries are set to fall in 2016?

Credit: Nathan Vill

This is Part 2, in our two part series, “Which Australian industries are set to soar and fall in 2016?”. If you missed Part 1 click here.

As mentioned in Part 1, according to a recent IBISWorld report there are a number of Australian industries set to rise and fall over the next 12 months, the question is, “How will it impact the companies on the S&P/ASX 200?”

According to analysts at IBISWorld the cotton growing industry is in for a bumper year in 2016, expecting rapid growth of 19.2%. Other industries set to boom in 2016 include internet publishing and broadcasting, organic farming, houseware retailing, and university and other higher education.

Some industries however, are in for a less than exciting year, as falls in global oil prices push down revenue for petroleum refining and petroleum fuel manufacturing. Revenue is also set to fall for contract mining services, diamond and gemstone mining, printing, and nightclubs.

(The list of shares in this article is by no means exhaustive, but simply an indication of the types of companies and industries to watch for in 2016).

Let’s take a look at the losers for 2016.

The Losers

Fall table

Petroleum refining and petroleum fuel manufacturing in Australia

The petroleum refining and petroleum fuel manufacturing industry’s revenue is falling rapidly, with a decline of 16.7% expected in 2015-16 alone. Industry revenue is estimated to decline at a compound annual rate of 7.7% over the five years through 2015-16, to reach $19.1 billion.

Mr Little noted that “the industry is struggling primarily due to intense and rising competition from new South-East Asian refineries.” These operations typically have higher output and lower costs than Australian refineries. These advanced refineries are also able to meet Australian fuel standards and this trend has made the Australian industry more vulnerable to import competition.

Shares to watch include,  Origin Energy Limited (ASX: ORG)Caltex Australia Limited (ASX: CTX) and AGL Energy Ltd (ASX: AGL).

Contract mining services in Australia

Contract mining companies provide support services for mining firms. Demand for industry services is typically driven by the relative cost savings and output advantages that mining companies derive from outsourcing these processes, compared with keeping production in-house. Industry revenue has fluctuated significantly over the past five years due to shifting operating conditions in the Mining divisions.

As commodity prices have fallen, many mining firms have ceased exploration projects, and instead shifted their focus to production. “This has been to the detriment of contract miners in the industry, as many services that were previously contracted out have been brought back in house,” added Mr Little. This trend is set to continue in 2015-16, contributing to a projected 6.3% decline in revenue to reach $11.2 billion. This follows on from a sharp 14% decline in revenue in 2014-15.

Shares to watch include, Cimic Group Ltd (ASX:CIM)Downer EDI Limited (ASX: DOW)Aurizon Holdings Ltd (ASX: AZJ)Monadelphous Group Limited (ASX: MND), Mineral Resources Limited (ASX: MIN)BHP Billiton Limited (ASX: BHP)Rio Tinto Limited (ASX: RIO), Orica Ltd (ASX: ORI)Aurizon Holdings Ltd  (ASX:AZJ)Fortescue Metals Group Limited (ASX:FMG) and Northern Star Resources Ltd (ASX:NST).

Diamond and gemstone mining in Australia

Revenue in the diamond and gemstone mining industry is forecast to fall at a compound annual rate of 4% over the five years through 2015-16, to reach $380.1 million. The industry’s performance has been volatile over the past five years, due to fluctuating production volumes and prices. A significant drop in revenue in 2013-14, and another expected fall in revenue in 2015-16 are expected to underpin the industry’s poor performance over the period.

“Industry operators also face strong competition from imports, which account for a large proportion of total domestic demand,” said Mr Little. The exit of Kimberley Diamonds, previously a major industry player, is expected to negatively affect the industry’s performance in 2015-16.

Shares to watch include, Rio Tinto Limited (ASX: RIO).

Printing in Australia

Printing industry revenue is projected to decline at a compound annual rate of 3.8% over the five years through 2015-16, to reach $6.9 billion. Demand for printed advertising materials such as catalogues, brochures, leaflets, booklets and posters has declined as spending on advertising has been redirected to the digital space. These trends have led to a sharp decline in demand for industry services, with revenue expected to fall by 3.8% in 2015-16.

“Over the past five years, the rising prevalence of online platforms has negatively affected demand for printed advertising materials such as catalogues, brochures, leaflets, and booklets,” said Mr Little.

Shares to watch include, PMP Limited (ASX:PMP) and CSG Limited (ASX: CSV).

Nightclubs in Australia

According to IBISWorld analysts, the nightclubs industry has had a tough couple of years. Industry revenue is expected to decline by 2.9% in 2015-16, following sluggish growth of 0.3% in 2014-15. This is in contrast to the strong industry growth seen in the years 2010-11 through 2013-14.

Sydney’s strict lockout laws, introduced in response to drunken violence in the King’s Cross district and falling per capita alcohol consumption among younger demographics (consumers under the age of 30) has negatively affected the industry.

“Favourable licensing laws and changes in consumer tastes have also increased competition from bar and pub operators,” Mr Little said. Melbourne and Sydney have both developed a strong bar culture, and consumer demand for these services has grown. This trend has diverted spending away from nightclubs in the industry over the past five years, contributing to the industry’s weaker performance in 2015-16.

Shares to watch include, Crown Resorts Ltd (ASX: CWN) and SKYCITY Entertainment Group Limited-Ord (ASX: SKC).

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Motley Fool contributor John Hopkins has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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