Latin America Biannual Construction Market Report 1Q/2Q 2024
Global tensions/commodities
Metals
Copper
Copper prices have climbed around 19% this year and have hit their highest levels since April 2022. China’s influence over the commodity is evidenced by market movements, amplifying the quandary over the supply and demand of industrial metals. Recently, Chinese authorities announced supportive measures for the struggling property sector, increasing demand.
A tightening of global mine supply and stronger demand from the green energy sector continue to support prices despite the drag from China’s property sector. Housing completions in China are down more than 20% year-on-year, which usually acts as a good measure of copper demand.
The recent election of a new president in Panama is a promising development for the future of the Cobre mine, as indicated by analysts. The mine was previously ordered to be closed by the outgoing government due to public protests over environmental damage. However, with the mine accounting for 1% of global supply, its reopening could potentially trigger a downward trend in prices.
In the short-term, a downward trend is anticipated as a correction of recent spikes, albeit the long-term supportive outlook has not changed. The green energy sector continues to expand and presents opportunities. With copper being a crucial component in everything from EVs to wind turbines and power grids, and with very limited alternatives, demand and prices will grow.
Zinc
Zinc prices have been buoyed recently by tightening in the supply chain. A strong-performing zinc market is also concurrent with a gradual and continual uptick in the usage of lightweight metal in China’s electric car production industry.
Recent news has also demonstrated a shortfall in materials that benchmark zinc smelter treatment charges has led to prices falling sharply. The charges cover prices paid by Canadian miner Teck Resources to Korea Zinc for them to convert its zinc concentrate into refined metal.
Reuters reports that the annual terms negotiated by the two companies have, in recent years, been the benchmark for the rest of the industry. The treatment charges rise during times of material surplus and slide during periods of shortfall.
Positive trade from China saw a rise in zinc imports and exports in April. Trading Economics notes this indicates a revival in foreign demand. A further bolstering of market sentiment is news that Swedish mining giant Boliden will resume production at its Tara zinc mine in Ireland, which had been temporarily shut down in 2023 due to a decline in zinc price, high energy costs and production difficulties.
Gold
While other metals prices are primarily dictated by supply and demand factors, gold prices are also impacted by the strength of the US dollar and Treasury yields. The metal has climbed more than 12% so far this year, with Federal Reserve policy as the key driver of the outlook.
ING reports that the Fed is expected to cut rates this year but has said that more evidence of inflation easing is needed first. If the Fed continues its cautious approach to easing, gold prices risk a pullback, as experts expect futures to remain volatile.
A source of demand for gold comes from the world’s central banks. Demand in the first quarter of this year is the highest of any year’s initial three-month period on record. Gold tends to become more attractive in times of instability when investors hedge their funds against an economic climate, geopolitical tensions or inflations.
Analysts expect gold prices to average out in the second quarter, hitting a peak in the fourth. This expectation is based on the Fed starting to cut interest rates in the second half of the year.
Silver
Like gold, silver prices are bound by the US dollar and the Fed Reserve's latest monetary policies. Therefore, expectations of an easing have also benefitted silver, which has recently surged in the same fashion as gold.
Up 16% since January, silver pricing is currently at its highest level since 2021. This surge is not just a result of the US dollar and the Fed Reserve's latest monetary policies but also due to the increase in Exchange-traded fund (ETF) holdings. These holdings, which act as a hedge against inflation and primarily invest in hard silver assets, have seen silver prices advance. It’s worth noting that ING highlights that investor holdings in gold and silver ETFs generally rise when prices gain and vice versa, indicating the significant role of investor sentiment in driving silver prices.
Already trading above $29 per tonne as of 16 May 2024, Trading Economics expects silver to surpass the $30 mark by the end of the quarter and to trade at above $32 in a year. As annual and core inflation rates slowdown in the US, with retail sales stagnating and consumer demand softening, markets are currently betting on more than a 70% chance of a Fed rate reduction in September.
Oil
Energy markets saw increased volatility throughout April due to rising geopolitical tensions and conflicts. Retaliatory attacks by both Iran and Israel against one another raised fears of an escalation in tensions in the Middle East and the potential impact on oil supplies. This, in turn, creates a risk premium in the oil market. Those tensions do appear to have eased, eroding that premium.
The Organisation of the Petroleum Exporting Countries (OPEC) countries also helped ease concerns as a result of the significant surplus throughout this period. Despite this, it is the OPEC countries who yield substantial influence over the short-term future. ING’s balance sheet shows the market to be in deficit by around 1 million barrels per day in the second quarter of the year before returning to a small surplus in the second half of 2024.
The concern is that the surplus could disappear quickly if members of OPEC+ decide to roll over their additional voluntary cuts of 2.2 million barrels per day. Doing so would leave the market in deficit for the remainder of 2024 and cause forecasts to rise for the second half of the year.
The more recent weakness in price only increases the likelihood of cuts rolling over. The upcoming US election could also have a bearing on the production reductions that OPEC+ members agree on.
The direction of the OPEC+ output policy will become clearer in June when the next Joint Ministerial Monitoring Committee sits. While it does not decide on policy, it will make recommendations on what members should do.
Impact of conflicts
Four in ten survey respondents said they had experienced impacts from conflicts outside of Latin America in the past six months. Issues reported included higher shipping costs and slower delivery times.
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