Although industrial metals are getting hit this week by the turmoil in the global stock market, looking further ahead, a weaker dollar and a Fed rate cut could provide support to prices. Elevated rates and a stronger dollar have been a drag on industrial metal prices. The Fed has held its key policy rate in a target range of 5.25% to 5.5% – the highest level in more than two decades – since last July.
With the market now expecting a first rate cut in September, we believe this could provide upside to metals prices, with lower rates easing borrowing costs for manufacturers.
Our US economist now sees a 50bp move in September followed by a series of 25bp moves that would get us back to a Fed funds rate of around 3.5% by next summer.
We forecast a third quarter average aluminium price of $2,500/t. Following this, we see prices rising in the latter part of the third quarter, with the fourth quarter averaging $2,550/t. The second half of the year should also be the starting point for Fed rate cuts. There is a risk, however, for demand to weaken further if high inflation keeps interest rates high. We see prices averaging $2,460/t in 2024.