METALS MARKET AHEAD OF THE FED’S DECISION

SCENARIO 1: THE FED CUTS INTEREST RATES

The market is currently near-certain that the Fed will cut interest rates by 25 basis points at the December 9-10, 2025 meeting. If this is accompanied by a broader dovish message, the USD is likely to fall, which usually supports commodity prices (metals) because metals priced in USD become cheaper for buyers using other foreign currencies. Furthermore, concerns about supply shortages due to mining disruptions and low inventories remain a long-term supporting factor for industrial metals (copper, tin, aluminum).

Further analysis of the impact on individual products:

1) Impact on Copper

Copper is the metal most sensitive to economic fluctuations and the US interest rate cycle. If the Fed cuts rates and Powell signals a “dovish” stance, the USD will weaken, thereby making copper cheaper for international buyers and stimulating demand. In addition, copper demand is strongly supported by energy transition sectors: electric vehicles (EVs), batteries, power infrastructure, and renewable energy. If concerns about supply shortages persist (especially from Chile and Peru), copper prices are even more likely to break out. In summary, copper is the metal that benefits the most when the Fed cuts rates, and the medium-term outlook remains positive.

Medium-term target range (Weak USD + Tight Supply): 12,000 – 12,500 USD/ton. If global demand recovers strongly (construction, energy, EVs, etc.) + supply remains tight, the price could re-test this area.

2) Impact on Tin

Tin plays a critical role in the electronics industry (soldering components, semiconductors). Tin prices often fluctuate sharply when the USD weakens because the tin market is relatively narrow and liquidity is not high. If the Fed eases policy, the reduction in capital costs and a weaker USD encourage electronics manufacturers to boost inventory, increasing tin consumption demand. Simultaneously, the risk of tin supply shortages, which often occurs due to production disruptions in Myanmar, Indonesia, or export restrictions, will contribute to pushing prices up. Therefore, tin could see a strong recovery if Powell signals a soft stance, especially as the market is currently undersupplied.

Target range (Weak USD + Supply Scarcity): 42,000 – 45,000 USD/ton if demand from the electronics and manufacturing industries increases, and supply remains restricted.

3) Impact on Aluminum

Aluminum is heavily dependent on the consumption outlook for the construction, industrial, and automotive sectors. When interest rates fall, lower borrowing costs stimulate investment, construction, and production expansion, which supports aluminum demand. If the USD declines, aluminum prices become more attractive to international buyers, but aluminum is less sensitive than copper and tin because the aluminum market is relatively large and supply is diversified. However, concerns about energy shortages or production restrictions in China could still tighten aluminum supply. Combining these factors, aluminum has an upward outlook, but the increase may be more modest compared to copper and tin, unless a supply shock occurs.

Target range if USD is weak + industrial demand is stable/increasing: 3,100 – 3,200 USD/ton due to the advantage of lower costs for foreign currency buyers, stimulating consumption.

SCENARIO 2: THE FED DOES NOT CUT INTEREST RATES

If the Fed holds interest rates steady and maintains a hawkish tone, the US Dollar will tend to bounce back strongly, putting downward pressure on most industrial metals. In an environment of prolonged high interest rates, investment, construction, and industrial demand shrink. Businesses also limit raw material stockpiling, causing metal inventories to decrease, but this is not enough to offset the short-term weakness in demand.

1) Impact on Copper

For copper, this is the metal most strongly affected. Copper is highly sensitive to the interest rate cycle and growth, so a strong USD and tight financial conditions will significantly lower copper prices. Speculative funds are likely to cut their long positions when the Fed signals a hawkish stance. However, the long-term supply story from Chile and Peru still provides support, giving copper prices a chance to recover when macroeconomic conditions stabilize.

In the short term, the price may adjust to the 10,000 – 10,300 USD/ton range before gradually recovering in the medium term.

2) Impact on Tin

Tin also faces pressure as the strong USD and slower demand from the electronics sector—which is very sensitive to interest rates—take effect. However, the tin market is inherently thin and heavily dependent on supply from Myanmar, Indonesia, and Asian refiners, so any disruption could create a strong upward pull.

Short-term tin prices may drop to 36,000 – 38,000 USD/ton, but the medium-term outlook still leans towards a quick recovery when supply shortage risks emerge.

3) Impact on Aluminum

Aluminum is affected more moderately compared to copper and tin due to its large market, high liquidity, and diversified supply. However, persistently high interest rates will pressure demand in construction and heavy industry, pushing aluminum prices down in the short term. Even so, factors such as high energy costs and the possibility of China restricting production due to environmental requirements still play a certain supporting role.

In the short term, aluminum prices may adjust to 2,700 – 2,800 USD/ton before entering a phase of slight upward consolidation in 2026 as demand recovers.

VQB COMMODITY LEANS TOWARDS THE FED CUTTING INTEREST RATES SCENARIO

First, inflation is gradually decreasing and returning to a stable trajectory, especially core inflation—a key metric the Fed monitors—which has cooled sustainably.

Second, the real interest rate is at a multi-year high, putting pressure on consumption, real estate, and corporate investment. When the cost of capital remains high for too long, the economy risks slowing down too sharply. The Fed needs to adjust rates to bring financial conditions back into a more balanced state, supporting growth, especially when global industrial and trade activity is in a weak phase.

Third, the market has almost fully priced in the probability of a Fed rate cut. If the Fed goes against expectations, the USD could rebound sharply, yields could spike, and financial conditions could suddenly tighten, creating an unnecessary shock to the market. The Fed has a tradition of avoiding unnecessary shocks, so choosing a 25-point cut is reasonable to maintain financial stability.

Finally, a rate cut also helps protect the recovery momentum in 2026, when major economies are facing slow growth and localized deflationary trends in Asia and Europe. A corrective step at this time allows the Fed to both uphold its 2% target and avoid pushing the economy into a hard-landing risk.

In summary, the Fed cutting rates is not out of urgency, but because it is consistent with the data, reduces cyclical risk, and maintains stability for the entire system.

Source: VQB COMMODITY