Fed holds rates, metals markets largely hold steady

The Federal Reserve is in no rush to cut interest rates, indicating that they expect just one cut in 2024, rather than the three they proposed in March. The reaction from metals markets Thursday has largely maintained the status quo.

At a press conference Wednesday, Chairman Jerome Powell noted that the CPI data “was certainly a better inflation report than almost anybody expected.” However, he also noted that more than one month of data would be needed to make a comprehensive assessment.

In a welcome sign, U.S. producer prices declined in May by 0.2%, mostly due to falling energy costs, according to a Thursday report from the U.S. Bureau of Labor Statistics. The PPI is a measure of inflation at the wholesale level, tracking the average change over time in the prices domestic producers receive for their output.

Edward Meir, an analyst for the New York-based brokerage firm Marex, said there were few surprises from the Federal Open Market Committee meeting held April 30-May 1.

“It was kind of what we were expecting,” said Meir. “It’s more of a status quo with a little hint of a rate cut. I think Powell realized that they could afford to ease rates at least once, and they included that in their forecast.”

While the CPI and jobs numbers came in stronger than expected, there has been some weakness in the manufacturing and housing sectors, which could impact demand for recycled materials. This uncertainty can lead to volatility in scrap metal prices, as market participants react to changing economic signals. For instance, the slight increases in LME Steel Scrap CFR prices for Turkey and India reflect a cautious optimism but also underline the market’s sensitivity to broader economic trends and monetary policy decisions.

After a brief expansion in March, the Institute for Supply Management’s manufacturing index showed that activity contracted for the second month in a row, falling to 48.7% in May, a drop of 0.5 percentage points from April’s reading of 49.2%. A reading above 50 indicates the manufacturing economy is growing, while a reading below 50 indicates contraction.

However, ISM stated in this week’s report that the overall economy expanded for the 49th straight month in April after one month of contraction in April 2020. The institute added that a manufacturing PMI above 42.5%, over time, usually indicates the overall economy is expanding.

“Metals had a positive reaction in light of this Fed move, but I think it’s kind of a one-off– you sort of got a knee-jerk reaction in the metals markets,” Meir said. “I don’t think the fundamental picture has really changed all that much.”

He noted that manufacturing activity remains lackluster globally. Meanwhile, the copper market presents a “very mixed picture,” he said.

“Mining supply is tight, but we’re not seeing tightness in the refined cathode market. Stocks are up on the LME and at four-year highs on the SHFE. The LME spreads themselves are all in big contangos, which tells you there’s no shortage of nearby metal,” Meir said. “I think we had a knee-jerk upward move, and it will calm down the rest of the week.”

The LME 3-month price for aluminum was broadly stable on the morning of June 13, CRU reported, and was last seen trading at $2,564/t. The LME price initially increased in the early afternoon after better CPI data was released from the U.S. However, this was later offset by rather hawkish feedback from the Fed’s FOMC meeting, CRU noted.

In mid-day trading, the copper LME 3-month price was $9,944.50, up 1.9%. The LME Steel Scrap CFR Turkey Month 2 traded at $381.00, up 0.40%. LME Steel Scrap CFR India clocked in at $422.00, up 0.60%