Natalie Scott-Gray, StoneX Senior Metals Analyst, discusses the far-reaching impact of new US copper tariffs and the surprising market reaction.
Key Takeaways
US tariffs target copper semi-finished goods, excluding refined copper
COMEX copper prices posted a record intra-day decline after the announcement
Global stock levels shifted as traders responded to new trade measures
Tariffs Exclude Refined Copper and Shock the Market
The US administration moved forward with a 50% tariff on semi-finished copper products, such as pipes, wires, rods, sheets, and tubes. However, the decision to exclude copper input materials like cathodes and anodes from tariffs caught the market off guard. As outlined by Scott-Gray, “the vast majority of imports in the country” remain unaffected, which diverged from initial expectations based on previous section 232 rulings".
Immediate Market Reactions and Price Moves
Following the announcement, COMEX copper prices suffered a record intra-day decline, dropping by more than 22% and sliding 24% over the week to their lowest level since early April. LME copper prices saw a more modest fall of 1.6%. The premium of COMEX over LME nearly vanished, dropping from $2,704/t to $43/t. Meanwhile, stocks in COMEX rose to record highs as market participants moved material into the US, and LME warehouses recorded an 11% increase in inflows.
Market Assumptions and Policy Drivers
Markets were largely unprepared for the exclusion of refined copper from tariffs. According to Scott-Gray, “it was largely if not entirely assumed refined copper would be included.” Early focus was on whether countries like Chile would receive exemptions, but the administration prioritized raw material exemptions following industry input. Future tariff measures are set to increase restrictions on copper input materials and may introduce phased tariffs on refined copper starting in 2027.
Outlook for Copper Prices and Investor Role
Scott-Gray forecasts a slow adjustment for US copper prices, with significant inventory likely to be worked through over 4-6 months. Longer term, “domestic US copper prices are likely to be underpinned at least at levels near parity to the global benchmark.” The LME is expected to regain its status as a global economic indicator, with attention on macro factors such as monetary policy, China’s economic health, and geopolitical tensions. Scott-Gray highlights that investors play a major role, as speculative moves “removed copper’s price performance from both macroeconomic and fundamental drivers” in 2024, and this influence is likely to persist.
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