A New Policy Breeze from Washington and a Major Test for Industrial Metal Prices In May 2026

The industrial metals market is moving into 2026 with a cautious mood as a new policy variable gradually takes shape in the United States. The possibility of Kevin Warsh taking on a leading role at the Federal Reserve in May is more than a personnel story. It could mark a turning point in the global monetary cycle, sending ripples through exchange rates, capital flows, and demand for basic raw materials worldwide.

For years, industrial metals such as copper, aluminum, and nickel have moved within a dense web of relationships linking economic growth, infrastructure investment, energy transition, and the cost of capital. When US monetary policy shifts rhythm, that entire network can be pulled off balance. What draws particular attention from investors is that Warsh has long been seen as more determined on inflation control than his predecessor Jerome Powell, and has previously supported a more forceful reduction of the Fed balance sheet.

Alongside the personal factor is a shifting geoeconomic backdrop. Relations between China and India show signs of improvement along certain axes of cooperation, while the BRICS group continues to discuss payment and trade mechanisms that rely less on the US dollar. Although this process remains slow and faces many barriers, it still adds strategic pressure on Washington to consider the role of its currency in the international financial system.

At the intersection of a tougher monetary stance and concerns about the dollar’s global position, industrial metal prices could face significant turbulence.

Transmission from interest rates to metals

When the Fed raises real interest rates or keeps policy tight for an extended period, the US dollar typically strengthens as global capital seeks higher yields and the perceived safety of US assets. A stronger dollar makes commodities priced in dollars more expensive for buyers using other currencies. This exchange rate effect alone can put short term downward pressure on metal prices.

The second impact comes from demand. Higher interest rates raise borrowing costs, prompting companies to delay factory expansions, governments to reconsider infrastructure plans, and consumers to tighten spending. Industrial metals, closely tied to construction, manufacturing equipment, automobiles, and electrification, are therefore vulnerable when growth slows.

Reality, however, rarely follows a straight line. If tightening happens too quickly and triggers a recession, central banks may be forced to reverse course. If inflation surges due to cost shocks such as energy or supply chain disruptions, real yields may fall even when nominal rates are high. In such situations, different commodity groups respond differently, and industrial metals can become highly volatile rather than simply trending lower.

Scenario One: A hard line from the start

If Warsh begins his tenure with a firm anti inflation message and quickly accelerates balance sheet reduction, markets could experience a clear liquidity squeeze. US Treasury yields would rise, the dollar would jump, and global financial conditions would tighten within months.

In that setting, copper is often the most sensitive metal. It is widely seen as a barometer of economic activity because it is present in everything from construction and power grids to electric vehicles. When businesses cut investment and infrastructure projects are postponed, copper demand tends to weaken quickly. Prices could fall more sharply than many other metals.

Aluminum faces an additional layer of influence from energy costs. If the economy slows while electricity and gas supplies remain stable, aluminum prices are likely to decline alongside demand. Conversely, if geopolitical tensions push energy prices higher, the cost of smelting could limit the downside, creating a more tug of war like market.

For nickel, zinc, and tin, the degree of impact depends on the health of key consuming sectors such as autos, galvanized steel, and electronics. In a broad tightening cycle, the common thread is weakening demand, which creates a lower price environment.

The consequences extend beyond trading floors. Many emerging economies that borrow in dollars would come under pressure as local currencies depreciate and debt servicing costs rise. Slower investment in these markets further weakens metal demand, creating a negative feedback loop for resource exporting nations.

One difficult variable is the risk of stagflation if a supply shock occurs at the same time, for example a sharp rise in oil prices due to conflict. In that case, companies face higher input costs while struggling to raise output prices because demand is weak. Metal prices might not fall as much as expected if supply is constrained, but volatility would be high and the medium term outlook would remain fragile.

Scenario Two: Controlled and flexible tightening

On the other hand, if Warsh opts for a more cautious approach, sending clear signals about the policy path and adjusting based on economic data, the shock to markets could be significantly softened. The dollar might still strengthen, but in a more gradual manner rather than surging.

In this environment, moderately higher yields help contain inflation without choking growth. Companies and governments can continue key projects, especially those tied to energy transition and infrastructure modernization. These sectors consume large amounts of copper, aluminum, and nickel.

Industrial metal prices would then be more likely to stabilize or correct only slightly rather than plunge. The market would pay more attention to fundamentals such as urbanization, investment in renewable energy, and electric vehicle supply chains, instead of focusing solely on dollar movements.

Emerging economies would also have more time to adjust to a higher interest rate environment. Capital outflows would be less abrupt, reducing the risk of localized financial crises and helping maintain import demand for raw materials.

Early signals to watch

To distinguish between these two paths, markets will closely analyze the first messages from the Fed under new leadership. The speed of balance sheet reduction, the way inflation risks are described, and the emphasis on policy flexibility will be key indicators.

Movements in short and long term US Treasury yields are also sensitive gauges. A rapid and broad based increase often signals a more aggressive stance than expected. At the same time, swings in the US dollar index reveal how much global financial conditions are tightening.

Over the longer term, concrete steps by BRICS to expand local currency settlement or build alternative financial infrastructure will continue to be monitored. While unlikely to reshape the monetary order overnight, such moves influence how the US uses monetary policy as a strategic tool.

A challenging phase for the metals market

Whichever scenario unfolds, the common theme is higher uncertainty compared with the long era of cheap money. Industrial metals, already sensitive to the economic cycle, must now also react to geopolitical calculations and shifts in the global monetary structure.

For investors and manufacturing companies alike, the task is no longer just about forecasting physical supply and demand. Managing currency, interest rate, and liquidity risks becomes essential. Firms with strong balance sheets, diversified markets, and solid financial hedging capabilities will be better positioned to withstand turbulence.

May 2026 may therefore be remembered as the moment a new chapter opened for basic commodity markets. Not only prices, but also the way the world assesses monetary and growth risks, could change in response to decisions made in Washington.