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Andy Home: Copper market suffers for ignoring its TACO hedge

The copper market has the tariffs right, but the products are wrong.

The traders did not expect U.S. president Donald Trump to make a proclamation that "will address the effects of imports of copper on America's National Security".

Imports of semi-manufactured copper products, such as wires and tubes, will face a 50% tariff starting Friday. The tariffs will not apply to refined copper until at least January 2027.

The tariff trade that has dominated the copper market in February has collapsed. CME's U.S. Contract plummeted more than 20% after the news. This wiped out the high premium that was previously over the London Metal Exchange price.

After traders sent huge tonnages of metal through the wide arbitrage gap, the United States now has a surplus of metal that it does not need.

The copper market has forgotten Trump's tendency of reversing his most extreme threats. To borrow a popular investor meme, it has been TACOed, which is short for Trump Always Chills Out.

Targeted Products for Copper

Tariffs on semifinished copper products are applied to between 400,000-500,000 metric tonnes of U.S. imports per year.

The United States imports a lot more refined copper. Last year, imports were just under 900,000.

Canada is the U.S.'s largest copper supplier, but its supplier base is diverse. Copper tubes were imported from 32 countries last year, for instance.

Tariffs will be applied to all copper-intensive products, including cables, connectors, and electrical components. This is likely to include more suppliers.

The new tariff wall will be good for domestic processors if they can cover the quality and range of products currently imported.

In the next few months, we will know how many exemptions specific to products have been granted.

SCRAP WARS GET HOTTER

Export restrictions will also be placed on concentrates mined in the United States and recyclable copper.

A quarter of domestically-produced "copper input materials" will be required to be sold in the United States from 2027. This rate will increase to 30% in 2020, and then 40% in 2029.

Even if Grupo Mexico were to reactivate its inactive Hayden plant, Arizona, it may be necessary to have more capacity available than the three domestic smelters currently operating.

To encourage domestic recycling, "high-quality copper scrap" must also meet a minimum requirement of 25%.

The exact types of scrap that qualify for the measure are not known, nor is it clear how the measure will work in reality. However, the move represents an escalation of the simmering scrap battles.

To stop "scrap leakage," the European Union also considers export quotas for recyclable copper.

China is the primary target, as it is the largest purchaser of secondary raw materials in the world.

In 2024, the country imported 2,25 million tons copper scrap, the highest total ever since 2018, when authorities tightened the purity requirements on imported material.

Imports are already slowing down this year due to a drop of 42% in shipments coming from the United States because of the high CME premium.

The global scrap market is experiencing a growing resource nationalism, which will lead to structural changes in the recycling of materials.

Can we have our COPPER back now?

Not for refined copper as everyone expected.

The United States has now ceased to need the copper that was shipped by large trade houses. It may have been a lucrative trade for those involved, but it is no longer necessary.

CME warehouses now hold 232.195 tons of copper. This is the highest amount since 2004. Due to traders' last-minute rush to beat the August 1 deadline, metal is still arriving every day.

Tariffs have a huge impact on the supply chain of other countries.

China exported nearly 260,000 tons (or 78,800 tons) of refined copper from March to June. This is a significant increase over the previous four-month period.

A portion of the copper was delivered to meet a shortfall on the London Market caused by the raid of LME stocks on brands that could be shipped to the United States.

It was mostly non-Chinese steel that was shipped to the United States from warehouses under bonded storage.

Shanghai Futures Exchange's stocks have plummeted to 73 423 tons, their lowest level since last December, due to China's booming exports.

The physical supply chain may take longer to adjust than the futures trade.

Analysts have already run the numbers to see if it makes sense to reverse the flow of copper back out of the United States.

SAME TIME THE NEXT ANNUAL?

What is the end of the copper tariff?

Most likely not, as the reference explicitly mentions the option of a stepped tariff on imported refined copper starting at 15% in 2020 and increasing to 30% in 2030.

The outcome will be determined by the report on the state and future of the domestic markets that Commerce Secretary Howard Lutnick is scheduled to deliver at the end of next June.

It is also dependent on whether Trump decides to change his mind before then.

Tariff Man is a great way to find out.

These are the opinions of a columnist who writes for.

(source: Reuters)