UK Construction Market Report 4Q 2024
Commodities
Metals
Copper
Demand for copper, a key element in construction and the transition to clean energy, continues to rise. BHP projects that global copper consumption will increase by an annual average of one million tonnes until 2035.
The challenge will be for supply to keep pace with demand, with estimates that existing mines will produce 15% less copper in 2035 than they do today due to grade decline and ageing infrastructure or processing facilities.
Volatility in pricing remains a feature, as the red metal market responds to macro elements. For instance, China announcing its stimulus package in September 2024 yielded copper’s largest weekly gains in four months — breaking past the USD 10,000 per tonne mark.
Analysts at Citigroup recently cut their short-term outlook for copper prices by 11%, partly due to likely hikes in US trade tariffs under Donald Trump’s upcoming presidency.
The bank now predicts that prices will fall to USD 8,500 per tonne in the next three months — down from its earlier estimate of USD 9,500. This follows a decrease of almost 10% since late September.
Aluminium
As aluminium demand grows, pricing reflects concerns about supply. Fitch is anticipating a 6% increase in average price levels in 2024 compared to last year, in a turnaround from 2023, whereby prices fell 15.6% year-on-year.
Pricing has recently surged on the news that China, the world’s largest aluminium producer, would cancel a 13% tax rebate on the metal starting from 1 December. The end of the rebates will make Chinese aluminium more expensive on the international market and could lead to a reduction in export volumes.
Aluminium is classified as a critical mineral by the US, EU and Canada. Supply concerns also revolve around raw material availability and supply chain disruptions, while demand arises from the accelerating shift to a green economy.
Forecasts indicate that global aluminium consumption will rise from 70.5 million tonnes in 2024 to 88.2 million tonnes by 2033, with an average annual output growth of 2.5% throughout this period. In the short term, ING notes expectations that the global aluminium market will return to a deficit from 2026.
Zinc
Mine production of zinc is expected to decline for the third consecutive year. The closure of mines in Europe, including the Boliden Tara mine in Ireland and the Aljustrel Mine in Portugal, has led to an 11.4% decrease in regional production.
The International Lead and Zinc Study Group (ILZSG) recently revised its forecast from an anticipated surplus to a 164,000 tonnes supply deficit for the year. The ILZSG forecasts full-year Chinese output, the largest producer globally, to be 3.4% lower than in 2023.
Zinc prices are forecast to grow, which should encourage mine restarts, leading to increased production. However, recent developments, such as Ivanhoe Mines' downgrade of expected output from its new Kipushi mine in the Democratic Republic of Congo, highlight the ongoing uncertainty and volatility in the zinc supply chain.
A Reuters poll published in October 2024 showed expectations for the global zinc market to see a surplus of 115,000 tonnes next year.
Nickel
Our previous report highlighted the increase in nickel pricing due to political violence in New Caledonia — a key source of nickel deposits. Production will recommence at mines such as Goro, operated by Prony Resources, after a six-month suspension triggered by riots in the French territory.
Demand levels will continue to rise as nickel is vital for the energy transition due to its use in electric vehicles. Prices, however, are currently around half what they were in late 2022, largely due to an influx of supply from Indonesia, where Chinese companies have made significant investments in processing facilities.
According to S&P Global Commodity Insights, forecasts indicate that surplus scenarios will continue over the next few years with a 5.8% compound annual growth rate between 2023 and 2028. This will challenge producers looking to restart operations in the short term, as expectations are that prices will remain flat.
ING highlights that Indonesia, which accounts for 57% of global supply, has had severe ore shortages due to issues with government permits since the start of the year, forcing smelters to pay high premiums to procure the raw material.
Food
The UN Food and Agriculture Organisation’s (FAO) Food Price Index reached its highest level since April 2023 in October 2024.
Prices for all commodities in the index, except for meat, increased, particularly vegetable oils, which rose by 7.3%. The index was 5.5% higher year-on-year, yet it remained 20.5% lower than its peak of 160.2 points in March 2022.
Cocoa prices have surged recently, partly due to seasonal Christmas demand, but also driven by the postponement of EU regulations concerning importing agricultural products from deforested areas, alongside challenges faced in harvesting and delivery in West Africa.
Data from the ONS shows food and non-alcoholic beverage prices rising by 1.9% in the year to October 2024 — up from 1.8% to September 2024. The annual rate of 1.9% in October 2024 compares with 10.1% in October 2023.
Farmers warn that a new environmental tax announced in the Budget will lead to higher food prices. From January 2027, the Carbon Border Adjustment Mechanism will apply to importing carbon-intensive goods used in the industry, such as fertiliser.
Energy
Brent crude oil
Geopolitical risks concerning the war in Ukraine have increased after the US said it would allow Ukraine to carry out long-range missile strikes on Russia. Oil prices subsequently rose, which could be further compounded if Ukraine targets Russian oil infrastructure.
Due to a power outage, November 2024 also saw production stopping at western Europe’s largest oilfield at Norway’s Johan Sverdrup. Reuters notes a possible tightening of the North Sea crude market, as the physical supply of crude oil from the North Sea underpins the Brent futures complex.
Conversely, the International Energy Agency forecasts that global oil supply will exceed demand by more than 1 million barrels per day in 2025 — even if output cuts remain in place from OPEC+. Supply is also rising in the US and Canada.
Weak demand from China, as well as the transition towards electric vehicles are weighing down on oil growth prospects. Oil prices traded slightly weaker after the report was released, with Brent crude trading below USD 73 a barrel.
Gas
ING notes that European gas prices have been trading at their highest levels since November 2023 due to concerns that some Russian pipeline flows could soon be disrupted.
Pipeline flows through Ukraine are expected to cease at the end of this year when Gazprom’s transit agreement with Ukraine comes to an end — amounting to approximately 15 bcm of annual supply.
Meanwhile, Austrian energy company OMV has announced its plan to halt payments to Gazprom for imports as part of an effort to recover EUR 230 million in damages awarded to it in an arbitration case. This move increases the likelihood that Gazprom may reduce gas flows if it does not receive payment.
With the beginning of the heating season and the low wind speeds across most of northwest Europe in recent weeks, EU countries are already drawing down the gas in storage, which was 90% full at the end of November 2024, according to data from Gas Infrastructure Europe.
Consumer price inflation
The latest ONS figures show consumer price inflation rose by 2.3% in the 12 months to October 2024 — up from 1.7% in September 2024.
A 10% increase in the energy price cap meant higher costs for gas and electricity compared with a fall at the same time last year. The cost of raw materials for businesses continued to fall, attributed mainly to lower crude oil prices.
The rise in inflation above the Bank of England’s target of 2% will likely influence discussions on when to lower interest rates next. The Bank reduced borrowing costs by a quarter point to 4.75% in November 2024 but indicated a further move was unlikely before next year.
Forecasts from the OBR show inflation rising to 2.6% in 2025, partly due to the direct and indirect impact of Budget measures.
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