In the wake of a significant rate cut by the US Federal Reserve on December 18, 2024, the US dollar has surged to a two-year high. While a stronger dollar often boosts investor confidence in US assets, it also exerts downward pressure on global commodities—particularly metals. Below, we examine the factors behind metal prices falling and consider what lies ahead for suppliers, buyers, and investors.
The Federal Reserve’s Rate Cut and Its Impact on Metals
- Stronger Dollar, Weaker Metals
- The metal prices falling trend is closely linked to a robust dollar, which makes dollar-denominated commodities pricier for foreign buyers. With the USD Index up 7% year-on-year (y-o-y), demand for metals has been curbed, prompting lower prices on international exchanges.
- Tariff Concerns Limit Future Rate Cuts
The Federal Reserve offered a note of caution regarding possible widespread tariffs proposed by President-elect Donald Trump’s incoming administration. The Fed sees tariffs as inherently inflationary, leading them to slow the pace of any additional rate cuts in 2025. Despite these warnings, the dollar remains elevated, contributing to ongoing softness in metals markets.
Recent Performance on the London Metal Exchange (LME)
Week-on-Week Declines
Following the rate cut, business activity in the metals sector contracted significantly. A seasonal lull in industrial activity also contributed to a 1–6% week-on-week (w-o-w) drop in metals prices on the LME for the week ending December 20.
- Nickel experienced the steepest decline (-5.6% w-o-w), mainly due to a persistent surplus in the market.
- Hot Rolled Coil (HRC) exports from China saw the smallest drop (-1.4% w-o-w), partly reflecting moderate consumption in China.
- Copper Inventories Grow
Despite China’s relatively stable demand, LME copper inventories rose 1.5% w-o-w in the third quarter of December, highlighting weak short-term consumption in Western markets.
Chinese Steel Production and Raw Material Stockpiles
Production Down, Stockpiles Up
Chinese steel production fell by 4% month-on-month (m-o-m) in November, bucking the unexpected rise in October. With a seasonal slowdown and weak construction activity, consumption continues to wane. However, Chinese buyers have been stepping up purchases of raw materials, resulting in iron ore port stocks that are roughly 30% higher y-o-y—despite real iron ore consumption rising only 2.5% y-o-y in November.
Potential Oversupply Risks
Elevated stockpiles of iron ore and other raw materials could become problematic if real consumption does not pick up. Should demand remain sluggish, these high inventories could amplify market imbalances and keep metal prices falling for an extended period.
Outlook: What to Watch in Metals Markets
Policy Shifts and Tariffs
The incoming US administration’s stance on tariffs could significantly influence global demand and pricing for metals. Watch for updates on any trade measures and how they may affect the currency markets and commodity flows.
Federal Reserve Moves
Despite the rate cut, the Fed has indicated a more cautious approach to further cuts in 2025. Any deviation in monetary policy—particularly if tariffs spur inflation—could move the dollar and, by extension, metal prices.
China’s Role in Global Demand
China remains a major driver of global metals consumption. If construction activity and industrial output pick up, stockpiles could tighten quickly. Conversely, ongoing sluggish demand will sustain downward price pressure.
Key Takeaways for Stakeholders
- Buyers: Lower metal prices can present an opportunity to lock in cost advantages. However, currency volatility may offset some of the benefits.
- Producers and Exporters: A strong dollar environment could erode the competitiveness of exports, prompting the need to diversify markets or adjust pricing strategies.
- Investors and Analysts: Monitoring the interplay between Fed policy, tariff announcements, and Chinese demand will be crucial in anticipating further movements in metal prices falling or rebounding.
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Stay tuned for more updates on metal prices falling, evolving supply-demand dynamics, and critical insights from the global metals marketplace.
