Middle East Biannual Construction Market Report 3Q/4Q 2024
Global tensions/commodities
Oil and gas
Dubai crude oil/Brent crude oil
Recent market outlooks released by the Organisation of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) indicate sluggish demand and a sizable crude oil supply surplus for the next year, keeping pressure on prices.
The IEA has revised down its global oil demand estimate — expecting demand to grow 862,000 barrels per day (b/d) in 2024 compared to previous forecasts of 903,000 b/d. This is largely due to a further slowdown anticipated in Chinese consumption. Also weighing on the global outlook is the rise in electric vehicle sales.
While the IEA forecasts demand for oil, natural gas and coal to peak this decade, major oil producers such as Saudi Aramco take a different view. Reuters quotes Amin Nasser, Saudi Aramco CEO, as being “fairly bullish” on China’s oil demand following its recently announced stimulus package. According to Nasser, Asia relies on hydrocarbons for 84% of its energy demand, while new energy sources cover new demand rather than displace conventional sources.
Natural gas
Natural gas prices are under pressure as geopolitical tensions continue to create volatility in energy markets.
According to the IEA’s World Energy Outlook 2024 report, natural gas demand is anticipated to reach a peak in 2030 in order to meet electricity demand in China and the Middle East, where policies have been reaffirmed to shift away from oil in electricity generation.
The Middle East as a whole – led by Qatar, Saudi Arabia and Iran – is forecast to see the largest growth in supply, with its share rising from 17% in 2023 to almost 30% in 2050.
Around 270 billion cubic metres (bcm) of new liquified natural gas (LNG) supply is currently under construction, which will result in the United States and Qatar almost doubling their capacity and becoming the primary source in 2035 — together accounting for around 50% of global LNG trade.
Metals
Aluminium
The global production of aluminium is reported to be close to an all-time high as demand intensifies. Consequently, pricing has climbed to new records amid wider concerns regarding bauxite ore supply.
Guinea is the world’s primary source of seaborne traded bauxite, but shipments from a major producer have recently ceased due to a dispute with government customs officials. Elsewhere, Australian exports have slowed due to tighter government environmental laws and a lack of natural gas supply.
Prices recently reacted by climbing to $2,655 per tonne on the London Metal Exchange. Continued disruptions in aluminium’s raw material supply chain will further support price growth.
Copper
Copper pricing reached a two-year high earlier this year driven by supply and demand concerns — partly driven by a lack of new mining projects and the greater need for the red metal if renewable energy ambitions are to be met.
Wood Mackenzie estimates copper demand will grow by 75% by 2050 to 56 million tonnes.
Analysts note that sustained growth in copper pricing depends on China’s economic recovery as the largest consumer of metals. However, the Chinese economy is growing at its slowest rate since early 2023, with a debt-ridden real estate sector hampering performance.
Rising consumption and industrial output figures in September offer hope of a potential increase from China in importing and producing copper.
Gold
Gold has gone from strength to strength this year and recently broke above $2,700/oz for the first time. Geopolitical tensions in the Middle East and uncertainty in the lead up to the US election drove further interest in the safe-haven commodity.
The US Federal Reserve’s interest rate cut in September and People’s Bank of China’s mortgage rate cut in October are further tailwinds for gold as the metal does not pay interest. Rising demand from central banks is another key factor pushing prices up.
ING believes the current environment is conducive to driving gold to “new highs” regardless of the US election outcome. Prices are expected to average $2,580 in the fourth quarter, with an annual average of $2,388. Upward momentum ought to be maintained next year, with 2025 prices averaging $2,700.
Silver
Silver pricing typically follows trends in gold but with more volatility. As with gold, demand for silver had increased due to global economic and geopolitical uncertainties — reaching a new high of $34.30 per ounce in October.
Since the start of the year, silver prices have gained around 35%. The upward momentum is also supported by the possibility of increased industrial use along with the rising demand from renewable energy manufacturers. For instance, silver is a key component in manufacturing solar photovoltaic panels. Almost 100 million ounces of silver were used last year, with its high conductivity enhancing the efficiency of converting light into electricity.
With demand growing, Metals Focus projects mine output struggling to keep up at 62.8 million ounces this year — 7% lower than the 2016 peak. Reasons for this include the fact that more than half of silver is mined as a byproduct of base metal operations. Rising mining costs and declining ore grades are other factors that contribute to the 28% of silver supply derived from primary silver mines.
Impacts of conflicts
Most respondents (58%) said conflicts in the Middle East had not impacted their projects in the past six months. However, almost a quarter said they did have an impact. Escalation of tensions adds uncertainty across the supply chain and increases project overruns and costs.
Nearly nine in ten respondents said conflicts outside the Middle East had not disrupted their projects in the last six months.
Material price volatility has subsided since the start of Russia’s invasion of Ukraine and, to an extent, is offset by oil exports. Russian oil can be purchased at a discount, refined and re-exported at market prices to Asia and Europe.
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