US prices of copper have been on a tear this year due to the fear that tariffs will be imposed on imports of the red metal. Futures prices have hit record highs on New York’s Comex, leading to a premium over the international benchmark in London – similar to the disconnect seen in the gold market.
That has created a lucrative opportunity for traders to ship the crucial industrial metal to America from cheaper overseas markets spanning Africa to Asia. Copper stocks at the Comex reached multiyear highs in late March, contrasting a tightening of supply elsewhere in the world.
The rush to get copper to the US accelerated after President Donald Trump ordered his Commerce Department in February to conduct a probe into potential tariffs on copper products. But the levies could be introduced within weeks instead of the months-long timeframe that had been widely anticipated, risking a painful end for traders if their copper cargoes arrive on US shores after any tariffs go into effect.
How much copper has been rushing to the US?
Trump’s first musings of a 25 per cent tax on copper imports in January unleashed record shipments of the metal to American ports before any new duties are implemented. Mercuria Energy Group estimates that as at late March, about 500,000 tonnes of copper was en route to the US, compared with normal monthly volumes of around 70,000 tonnes.
Traders aren’t just striking new deals to get copper to the US and clear customs before any tariffs are imposed, they’re also front loading already planned shipments. The dash is intensifying amid the prospect of a levy being introduced much sooner than the industry previously expected.
On Feb 25, Trump signed an executive order commissioning a Section 232 investigation into whether reliance on foreign sources of copper poses a risk to US national security, and if measures such as tariffs or quotas are required to mitigate any threat. The probe is looking like little more than a formality, as Trump has regularly said that he plans to impose the tariffs. The administration is proceeding expeditiously with the review, and a conclusion could be possible well before the 270-day deadline, an official familiar with the process told Bloomberg News.
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Analysts at Goldman Sachs had expected a 25 per cent tariff to be rolled out between September and November. With the levy now likely to come sooner, the premium of the Comex over London Metal Exchange prices – which stood at a record 17 per cent on Mar 26 – is likely to widen further, the analysts said.
Where is the copper being express shipped to the US coming from?
Much of the refined metal being sent to the US is coming from giant mines in Latin America, namely in Peru and Chile. Codelco, Chile’s state-run copper producer and the top exporter to the US, said it’s striving to meet additional demand from its American customers. Chief executive officer Ruben Alvarado told reporters on Mar 28 that the company’s first quarter shipments to the US were 50 per cent higher than the same period last year.
The metal is also being rerouted away from buyers in China – the world’s largest processor and consumer of copper – as, for the time being at least, the US has usurped China as the preferred sales destination for the world’s biggest producers and traders.
Goldman Sachs analysts have said that tariffs could cause China to refine less copper – to the tune of 10,000 to 20,000 tonnes a month within the first three months of the levies being introduced. Once any import taxes kick in, the wave of copper heading to the US is likely to slow and American consumers will work through their inventories, avoiding a glut in the US in the third quarter when the bank had expected tightness in the global copper market to be most pronounced.
Why is Trump considering tariffs on copper imports?
The main reason appears to be a desire to revive the US copper industry and ensure security of supply for this critical material. Copper is one of the world’s most ubiquitous metals, used across a wide range of applications, including electrical cables, pipes and electric vehicles.
US government officials have argued that dumping and overcapacity in the global market have weighed on domestic copper production, leaving America reliant on foreign sources of the metal for vital industries such as weapons manufacturing.
While the US has significant mines, producing 850,000 tonnes of copper last year, its consumption of the refined metal reached 1.6 million tonnes, according to the US Geological Survey. Imports are therefore essential to fill the gap. Around 38 per cent of deliveries come from Chile, followed by 28 per cent from Canada and 8 per cent from Mexico.
Trump’s February executive order said that the US “has ample copper reserves, yet our smelting and refining capacity lags significantly behind global competitors”. The country had several operational smelters in the late 1990s, but just two are active today – one in Arizona and another in Utah. That decline came as China built plant after plant to dominate the smelting industry. And today, smelters around the world are locked in fierce competition to secure the raw material for refining.
The Trump administration’s focus on copper and the potential tariffs to come are part of a broader effort to boost US production of critical minerals. Trump signed an executive order in March invoking emergency presidential powers to fast-track the development of new metals and mining projects.
Can the US actually boost its domestic copper production?
Carrots such as the slashing of red tape and sticks such as tariffs could motivate companies to commit the huge investment needed to reduce US reliance on copper imports.
At least two major copper mining projects are being held back by permitting issues – Resolution in Arizona, a joint venture between Rio Tinto and BHP, and Antofagasta Plc’s Twin Metals in Minnesota – while a smelter is sitting idle. Reviving Grupo Mexico’s Hayden smelter in Arizona could boost US output by 300 million pounds of copper cathode, a high-purity form of the metal that can be turned into wire and rod.
But building new copper production capacity can take years, or even decades, to progress from discovery to first production. In the meantime, the tariffs will leave US manufacturers paying much more for the metal than rivals overseas.
Is the copper price rally sustainable?
According to one of the highest-profile copper bulls, yes. Mercuria’s Kostas Bintas suggested that prices – which were approaching US$10,000 a tonne in late March – could reach US$12,000 or US$13,000 due to the US drawing huge amounts of copper and leaving the rest of the world short. Even those with a bearish view on global economic growth – and therefore copper demand – see the current supply shock for the metal continuing to push up prices.
Downward price pressure would come from any decision to drop, delay or scale back the tariffs. Trump’s trade policies also risk choking supply chains and fanning inflation, potentially worsening a global economic slowdown.
Beyond the short-term dynamics, copper’s prospects continue to be supported by the ongoing transition to cleaner energy, as well as the nascent boom in data-centre development. Retooling power and transportation systems to run on renewable energy will require far more copper than the companies that produce the wiring metal are currently committed to deliver. BLOOMBERG
