What’s the correlation between interest rates and commodity prices? This is a poignant question in the wake of another quarter-point increase in interest rates last month and the concern over rising prices for manufacturers.

The correlation between interest rates and commodity prices is indeed present. Still, Nick Webb, Ryerson’s director of risk management and commodity hedging, suggests starting the discussion one step earlier: the relationship between commodity prices and the U.S. dollar.

“Looking at global commodities, many are priced in U.S. dollars. That’s important because when you have commodities priced in U.S. dollars, that means that as the dollar strengthens in relation to foreign currencies, it makes it so that the U.S. dollar is more viable to buy more of the commodities you need,” says Webb.

Webb describes an inverse relationship where the strength of the U.S. dollar causes commodities to be more affordable for those purchasing using this currency.

Moving over to interest rates, according to Webb, the U.S. dollar tends to have a positive correlation to interest rates. He says, “Investing in U.S. government debt is more attractive as interest rates increase. This means interested parties get a higher interest rate when buying this debt and demand more U.S. dollars.”

And here is how it all comes together: Higher interest rates make investing in U.S. government debt more attractive, strengthening the U.S. dollar. A stronger U.S. dollar leads to better purchasing power for those buying global commodities."

While it’s not an exact science, it’s a formula that could impact the price of industrial metals in the future. Below, we peek into futures pricing and bank forecast data to see where some market experts predict prices in 12-18 months

The forecast data that appear sin this report is aggregated data from Bloomberg and not Ryerson.
 

What Does the Future Hold for Steel Prices?

 
Hot-rolled coil prices are hovering around the $800/ton mark, with lead times continuing to stabilize and be representative of historical norms. Recent price increases from mills seemed to have stabilized prices and rumors of another price increase never materialized.

 

Over the next 18 months, HRC futures contracts predict pricing movement to be in the +/-$20/ton range, similar to the model's forecast roughly six months ago.


Mark Gross, senior product manager for carbon flat roll, says one thing to look for in the coming month is the rate of consumption by key industries. “Major consuming industries like auto, construction, and energy can move the needle in either direction as they account for a significant amount of available capacity,” says Gross. “Or course, factors such as new mill capacity, import availability, and mill outages can play a meaningful role in the supply landscape.”

 

August 2023 metal prices

China Influences Aluminum Prices

 

LME Aluminum prices have gained momentum in recent weeks, breaking out of the downward movement and trading above the 50-day average, around $1/lb.

Bank forecasts show an increase of roughly 10% over the next 12-18 months, and much of this could be driven by the anticipation of China investing in its digital and electrification infrastructure, which would require an ample supply of aluminum, nickel, and copper.

LME aluminum prices august 2023
“It’s tough to predict the direction of LME aluminum pricing for the balance of 2023 but global economic growth plays a significant role in aluminum demand,” says Mark Mooney, Ryerson’s senior product manager, aluminum. “For instance, China is the largest consumer of aluminum globally, accounting for a substantial portion of global demand. Any changes in China's economic growth, infrastructure projects, or government policies can significantly impact aluminum prices.”

 

Will More Supply Buoy Nickel Prices?

 

Nickel prices have risen slightly as of late, sitting around $9.80/lb. as of early August.

Over the past 18 months, the roller-coaster ride on the LME for nickel has been well documented, primarily driven by lean inventories on the exchange. This script could flip for LME nickel in the future with news of the LME fast-tracking a new nickel producer onto the exchange in June.

The anticipation is that class-1 nickel producers could add roughly 200,000 tons of metal in the next 18 months, which would help balance the supply-demand fundamentals plaguing nickel prices.

While bank forecasts put the high for LME nickel above $13/lb., the average is $9.07-$9.80/lb., which is closer to the current pricing.

 

Nickel prices August 2023

In Focus: Meeting the Moment in EV Supply Chains

 

The pace of electric vehicle (EV) adoption is expanding rapidly. In 2022 the U.S. saw EV sales soar 65%, with the Bureau of Labor Statistics (BLS) predicting that as many as 50% of all cars sold will be an EV by 2030.

This shift to electric isn’t unique to the US: in China, one of every four vehicles sold is an EV, while the EU registered over 1 million electric vehicles for the first time in Q1 2023.

The global desire for EVs presents a massive opportunity for manufacturers and several challenges. The need for a well-established supply chain has become paramount in meeting demand, particularly regarding high volumes of direct raw materials such as aluminum, steel, and stainless steel.

Both proximity and inventory matter greatly in EV manufacturing.

 

Supply chain visibility


According to Amanda Seabaugh, Ryerson's senior director of vertical markets, speed, resiliency, and consistency make a tremendous difference in the quality and timeliness of manufacturing supply chains for EV.
 
“America is kind of late to the EV party. In Europe and Asia, the supply chains are more established, while in North America, you have a lot of overseas companies opening facilities, creating partnerships, and looking for a true partner like Ryerson to support their metal needs. We can provide that support to ensure success.”

Read more about how Ryerson is meeting the moment in supply chains, for EV and other manufacturers here. 

 

Ryerson: The Metal Supplier of Choice

Ryerson is a leading North American metal supplier that provides more than just metal. We respond to the ever-changing needs of manufacturing today.

With a vast inventory of steel, stainless, aluminum, alloy, and more, we are committed to providing our customers with the metal and services they need to succeed. We stock a range of shapes and sizes, or we can provide processing and fabrication for every product we sell.

Order online at Ryerson.com for comprehensive pricing and fast delivery, or contact us today to learn more about how we can meet your metal needs.


 
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