US President Donald Trump recently announced 25% tariffs on steel and aluminium, and while this policy is intended to help US metal producers, it takes time to reopen factories and build new facilities which has led to supply constraints in the short term.
While Trump has yet to impose tariffs on copper, the threat of tariffs on steel and aluminium has pushed the premium of Comex copper futures over London Metal Exchange (LME) futures to a record high. On Tuesday, the Comex copper premium retreated to $725 a tonne from $930 a tonne, but it is still twice the level it was at the end of January. Copper price volatility was fuelled by market expectations that copper could be the next tariff target.
Three-month copper futures on the London Metal Exchange is currently trading at around $9,400 a tonne, meaning the market has already begun pricing in tariffs of at least 10%.
According to the U.S. Geological Survey (USGS), the U.S. still relies on imports for 45 per cent of its domestic copper consumption. As a result, prices are very sensitive to Trump’s tariff threats. The fact that higher tariffs could eventually be imposed if trading partners retaliate is clearly panicking the copper market.
Industry insiders point out that the current copper premium on the CME is encouraging more of the metal to flow to the US, as two of its allies, Canada and Mexico, are both threatened with 25 per cent tariffs.
Copper’s influence in the global industrial economy is deeply entrenched, with the reputation of Dr Copper. Obviously, once tariffs are imposed in a tit-for-tat mode between the US and its trading partners, this will be a serious drag on consumption.
LME copper prices have risen by 7 per cent since the beginning of January this year, largely due to market expectations that demand will improve, particularly in China. But China is also the target of Trump’s tariffs, along with other countries.
If the tariff wars have begun, copper will be a casualty, implying a further fracturing between CME and LME markets.
