As the Federal Reserve considers rate cuts during the September 17-18 meeting, analysts are evaluating how this monetary easing could affect industrial metals, particularly copper and aluminium.
HSBC outlines two scenarios:
- Soft Landing: If the U.S. economy avoids a recession, the Fed may opt for incremental cuts (100 basis points by 2025). In this case, copper and aluminium prices may follow the 2019 trend, remaining range-bound as the market has already factored in economic deceleration. Prices could recover slowly after an initial dip, forming a W-shaped bottom.
- Recession: In a recession scenario, more aggressive rate cuts could lead to a sharp decline in prices, similar to the dot-com bubble (2000-2003), where copper and aluminium dropped 34% and 28%, respectively. HSBC warns that metal prices could fall by 20% in the next year if a recession hits.
HSBC favors aluminium in this cycle, expecting it to be more resilient due to supply constraints and strong demand from energy transition projects. Tight supply, high alumina prices, and Chinese capacity caps offer price support. Key players like China Hongqiao and Chalco are expected to benefit from robust margins and production growth.
In summary, while copper and aluminium may face near-term price pressure due to economic conditions, structural supply issues and energy transition demand are likely to provide a buffer, particularly for aluminium.