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Andy Home: Copper's physical trade tariff is rapidly fading away

Andy Home: Copper's physical trade tariff is rapidly fading away

The announcement of import tariffs at 50%, effective from next month, by U.S. president Donald Trump was a double shock to the copper market.

Market participants bet that tariffs will be lower and with a longer lead time.

The CME copper contract is setting new records as it adjusts for the higher tariff differential between the London Metal Exchange contract and the CME contract.

The physical supply chain is no different. The start date of August 1, signals the end to the race to send physical metals to the United States in order to take advantage of tariff arbitrage.

The physical tariff trade may still be able to finish in time for a few lucky cargoes that are already on the water, but it is rapidly fading.

This is already evident in the rising stock and easing time-spreads of the London market.

BONANZA TRADE

Since the Trump administration launched a national-security investigation in February into the U.S. dependence on copper imports, the tariff trade has become a boon for traders and merchants.

The copper has been so profitable that the LME, the Shanghai Futures Exchange and other markets of last recourse have all been stripped for the available metal.

Between March and May this year, U.S. imported refined copper soared to 541 600 metric tons. This is equivalent to 60% over 2024.

Copper imports from Australia, Asia and Europe have been added to the traditional copper sources of Chile and Peru.

CME inventories have more than doubled in size since the beginning of March. At 222,723 tonnes they are now only a few tons short of their 2018 peak.

There is more copper in the shadows. Citi estimates that the excess is between 400,000 to 500,000 tons. This would negate the U.S. demand for copper until 2025.

Macquarie Bank estimates that it may take nine months to remove the mountain of metal if there are continued metal flows under long-term contracts.

HONG KONG ACCELERATOR

The global supply chain will adjust quickly, as evidenced by the rising stocks and the loosening of spreads on London's market.

The benchmark cash is three months. The market flipped from backwardation into contango almost instantly after the confirmation of the tariff, with 25,000 tonnes of copper that were destined for physical loading being dumped in the marketplace.

LME inventories have risen by 33,525 tonnes this month as the United States shipping window has closed. This is largely due to shipments from Chinese producers.

Since March, Chinese exports have increased in response to the U.S. drain of LME stock and the tightening spreads that resulted.

The opening of the exchange warehouses at Hong Kong allows for a faster delivery.

Since opening on July 15, the exchange warehouses in the island have received 5,975 tonnes of copper.

It is possible that there will be more. The LME benchmark is in a comfortable contango at $66 per tonne, compared to a backwardation that was more than $300 per tonne at the end June.

Who's the real Doctor COPPER?

Trump's tariffs has split global copper prices between the United States of America and the rest the world.

CME's new historical highs have sparked a reaction from copper bulls. However, this is not a reflection on global market dynamics but rather a response to import tariffs that were higher than expected.

CME's spot premium over LME has increased from $1,233 to $3,095. Since Trump imposed tariffs, the CME differential in price has increased from 13% per ton to 31%.

The LME 3-month price is locked in a sideways band just below $10,000 per tonne, which is still well short of the records highs over $11,000 per tonne seen in May 2024.

The total stock of exchanges is little different from the beginning of the year, despite the massive relocation of global inventories to the United States.

Including LME off warrant stocks and copper registered at ShFE's International INE arm (international exchange), global inventory is down just 18,000 tonnes since the beginning of January. This ambiguous situation is best captured by the stable LME price rather than an overheated U.S. market.

There is a dearth of detail in the new tariffs. Will copper products be included? Will the U.S. export of copper scrap be restricted? Will there be any exemptions for preferred suppliers?

It's not yet clear, but global pricing is clearly fractured.

Doctor Copper has now a transatlantic twin, but it is London's doppelganger that is the true reflector of global production activity, not its American counterpart.

These are the opinions of a columnist who writes for.

(source: Reuters)