THE IMPACT OF THE FED’S INTEREST RATE CUT ON INDUSTRIAL METAL PRICES UNDER A MULTIFACETED PICTURE

The decision by the US Federal Reserve (Fed) to cut interest rates always sends ripple effects across global financial markets, particularly the industrial metals group. Closely tied to the outlook for economic growth, this sector is among the quickest to react. After the Fed unexpectedly lowered the interest rate by 25 basis points, the prices of copper, aluminum, and a range of metals traded on international exchanges immediately recorded strong movements. However, this impact is not uniform but shows a clear differentiation between individual metals, depending on their supply-demand fundamentals and sensitivity to the economic cycle.

Interest Rate Cuts and the Transmission Mechanism to the Metal Market

A Fed rate cut creates two main effects: a weakening US dollar and a reduction in the cost of capital. When the USD depreciates, metals priced in dollars become “cheaper” for importers, increasing the attractiveness of physical trade. Furthermore, expectations of improved economic growth typically lead to higher demand for metals used in construction, energy, manufacturing, and infrastructure.

Amid a context where many investment funds increase their allocation to risk assets as the cost of capital falls, the flow of money into the commodity market has amplified the price reaction of metals, leading to sharp surges immediately following the Fed’s announcement.

COPPER: THE MOST SENSITIVE “BELLWETHER” OF THE GLOBAL ECONOMY

Copper is the metal that reacts most strongly to monetary easing signals. Following the rate cut decision, copper prices immediately surged, at one point approaching historical highs on several exchanges. Low inventory levels on the LME and stable import demand from Asia further fueled this upward momentum.

Many analysts from Reuters, Investing.com, and SMM indicate that financial factors played a significant role in the recent uptrend, as investment funds collectively increased their long positions. However, they also caution about the risk of a correction if US-China economic data do not confirm the recovery expectation. Supply from Chinese smelters, if it ramps up again, could quickly alter the market balance.

ALUMINUM: BENEFITING FROM MONETARY POLICY AND INDUSTRIAL POLICY

Compared to copper, aluminum prices have shown a more sustainable increase, thanks to a combination of economic expectations and structural supply factors. Many large banks, such as J.P. Morgan, maintain a “positive” view on aluminum due to high production costs, particularly electricity prices—a determining factor for the aluminum smelting industry.

SMM reports note that aluminum consumption demand from the automotive and renewable energy sectors remains stable. Nevertheless, aluminum inventories on some exchanges show a slight upward trend, which could create short-term price fluctuations.

ZINC AND LEAD: DIFFERENTIATION BETWEEN OVERSUPPLY AND CAUTIOUS DEMAND

In contrast to copper and aluminum, these two metals did not react excessively to the news of the Fed rate cut. Besides the weaker financial impact, the markets for zinc and lead are pressured by an oversupply context and cooling demand in the construction sector, which is particularly important for zinc due to its heavy use in galvanizing steel.

The ILZSG has previously warned that the lead and zinc markets could enter an extended period of oversupply if refined production is not curtailed. Commodity funds even shifted to a “bearish” stance on these two metals last month, further limiting the upward price momentum.

STEEL: INDIRECT IMPACT AND DEPENDENCE ON CHINA’S POLICY

The steel market is less directly affected by US monetary policy than non-ferrous metals. Steel prices are heavily influenced by construction demand in China, the world’s number one steel consumer. China’s policies on real estate stimulus, infrastructure investment, and restrictions on steel production capacity play a decisive role in the global steel price trend.

Reuters analysts suggest that the Fed rate cut could support positive sentiment, but for steel prices to break out, clear signs of improvement are needed from the Chinese real estate market, which remains uncertain.

WHAT EXPERTS ARE SAYING

Leading experts from Metal.com, JPMorgan, Reuters, and major metal market analysis organizations agree on three core points:

• Copper and aluminum will benefit the most if the monetary easing cycle continues.
• Zinc and lead remain highly exposed to oversupply risks, regardless of supportive signals from the Fed.
• The steel market will only break out when China changes its policies, being less dependent on US interest rate developments.

Many analysts also emphasize that the “psychological effect” following each Fed policy change is often short-lived. For a sustained price rally to form, the market needs stronger fundamental factors: declining inventories, recovering construction and manufacturing demand, and stability in industrial policy.

OUTLOOK AND SCENARIOS AHEAD

In the short term, the metals market may maintain a positive trend if the USD continues to weaken and global manufacturing indices show signs of improvement. However, in the medium and long term, the differentiation outlook may become clearer:

• Copper is expected to continue rising due to its essential role in electrification and renewable energy.
• Aluminum is supported by production costs and stable industrial demand.
• Zinc and lead face the risk of decline if inventories continue to accumulate.
• Steel awaits stronger steps from China to establish a clear trend.

While the Fed’s rate cut provides an important impetus, the industrial metals market remains a multifaceted picture where actual supply and demand factors ultimately play the decisive role.