So far, June is busting out all over, but not in the way metals producers would like.
Market observers may actually observe a possible change in trend (note: the current bull market, which began in May 2016, appears to have run out of steam).
First, the Fed hiked interest rates by 0.25% last Thursday. Though expected, it will most likely not impact markets in an abrupt way.
Let’s take a look at some of the key indicators:
The most recent Fed rate hike breathed a little life into the dollar, which has fallen for most of this year.
We believe this could have a direct impact on the metals industry — namely, causing prices to fall.
Commodities Are Falling
The CRB Commodity Index has fallen to its lowest levels in more than a year.
As commodities are priced in dollars, they become more expensive for buyers when the U.S. dollar increases. This, therefore, can cause falling prices.
Oil Prices Are Also Down
Oil prices have continued their downtrend, falling further this month.
Oil prices are important for metal buyers, as they directly impact energy prices — a big input for many metals markets, but particularly aluminum.
A decrease in oil prices may result in a wider margin for metal producers, due to the reduction of raw materials and other fixed costs.
Therefore, production of some metals, such as aluminum, may increase over the next few months.
Metals Industry Remains Range-Bound
Many of the macro signals are suggesting a possible turn toward a more bearish market, while metals prices remain somewhat volatile after the rise in January.
We think the Fed’s 0.25-point interest-rate hike will not have a big impact on metals prices, but may have the effect of balancing supply with demand for certain metals.
That balancing would directly impact metal prices, something we discuss in in our Monthly Metal Buying Outlook.