Dollar Strength Pins Down Aluminum and Zinc While Copper Breaks Away

Trade policy and financial flows drove the base metals index to a record high, yet most of the complex is now under pressure as a strong dollar weighs on aluminum and zinc. Dollar strength is pinning down base metals because an inflation shock forced Western central banks to reverse their rate cuts, and that firmer dollar is a headwind across the London Metal Exchange. Copper is the exception, holding up on investor money, AI-driven power demand and its status as a U.S. critical mineral. Heading into LME Week, the split between copper and the rest of the complex is the trade every metals participant is watching.

Natalie Scott-Gray, StoneX Senior Metals Analyst EMEA and Asia, has more than 12 years of experience across metals and energy markets and covers LME and battery material metals across EMEA and Asia. She tracks copper, base metals supply and demand, and the macro forces that move them, and she hosts The Base Case, a quarterly series with the StoneX base metals desk.

Key Themes from the Discussion

• An inflation shock reversed Western rate cuts and strengthened the dollar against base metals.
• Copper draws record options volumes and new investor money despite a bearish macro backdrop.
• A weaker dollar is the underappreciated trigger for an aluminum and zinc rebound.

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Inflation Shock Lifts the Dollar and Drags on Base Metals

"The conflict around the Strait of Hormuz turned an energy shock into an inflation shock", says Scott-Gray, and that shock forced Western central banks into a U-turn on their rate-cutting cycle. The reversal underpinned the dollar, which she describes as a headwind for the metals. Giles Plumb, StoneX Head of Base Metal Trading, sees the same pressure on the trading desk, with the macro backdrop and a strong dollar pushing aluminum and zinc back toward levels where the market is searching for support. For aluminum and zinc buyers and sellers, the takeaway is that the dollar, rather than physical demand, is setting the tone for base metals prices.

Copper Breaks From Base Metals on Investor and AI Demand

Copper is the one base metal shrugging off the strong dollar, and the money behind it is new. Philip Meijer, StoneX Options Sales Trade, reports record volumes and open interest in London Metal Exchange metals options, with macro funds that rarely trade metals placing large upside bets alongside a wave of put buying as a recession hedge. According to Scott-Gray, copper is "the one to watch not just as a hard asset play, but arguably carrying its own geopolitical risk premium", a premium tied to its designation as a U.S. critical mineral. Michael Price, StoneX Senior Base Metal Sales, adds that AI demand for copper reaches beyond data center construction into the power, cooling and grid infrastructure needed to run them. Copper's support therefore stems from structural demand that dollar strength alone does not erase.

Dollar Reversal Risk Hangs Over Aluminum and Zinc

A weaker dollar is the scenario that could flip the base metals story, and Plumb flags it as the most underappreciated risk, since dollar strength is what is holding back much of the complex. Michael Cuoco, StoneX Head of Fund Sales, Metals and Bulks, sets out the path, where an end to the wars brings back synchronized global growth, cooler inflation, lower yields and a weaker dollar. Cuoco also points to China's new provincial five-year plans, which are infrastructure-led and power-grid intensive, as a source of firmer demand for copper, aluminum and zinc. Chinese demand remains the missing piece, though, because as Scott-Gray puts it, "it doesn't seem like China desperately needs that material at the moment".

 

--- Written by Frédéric Guétin, StoneX Media Producer

--- Expert: Natalie Scott-Gray, StoneX Senior Metals Analyst EMEA & Asia