Copper rattled by tariffs, clarity yet to come | Hotter Commodities

What we know so far is that a 50% tariff will be imposed from August 1, according to a post by US President Donald Trump on the social media platform Truth Social. The tariffs follow a formal Section 232 investigation, announced on February 25 and due to be completed by November 22.

But the investigation finished in mid-June, well-ahead of the 270-day timeframe allocated. At this point, government officials were given 45 days — from June 16 to July 31 — to decide on the next steps, sources familiar with the matter told Fastmarkets.

It would be logical to assume that the investigation found the copper sector to be overwhelming in favor of tariffs. The Section 232 investigation received 94 comments, of which 82 have been made public via the Federal Register.

The vast majority of public comments submitted did not explicitly support tariffs — instead, most stakeholders emphasized strengthening domestic capacity, advocating for targeted and strategic interventions.

The US currently imports half of its refined copper cathode needs from Chile (69%), Canada (17%), Peru (10%) and Mexico (2%), each of which have free trade agreements with the US. But that does not mean any exemption is a given, particularly if the experience of aluminium imports from Canada are anything to go by.

The known unknowns

The things we do not yet know are important.

There is no official word on whether the tariffs will apply to some or all customs codes for cathodes, raw materials feedstocks, semi-fabricated products and scrap, though lobbying groups are actively pushing for distinctions.

For its part, the Copper Development Association (CDA) has warned that tariffs on cathodes and scrap could backfire by raising costs on essential products — such as wiring, appliances and data infrastructure — while undermining US manufacturing and energy security goals.

Instead, the CDA favors targeting semi-fabricated copper imports like wire, rod and sheets, while heavily taxing copper scrap exports, which topped 700,000 tonnes in 2024, to encourage domestic recycling and secondary refining capacity.

The 50% level of tariffs has taken some by surprise, largely because existing Section 232 measures on aluminium and steel in the first Trump administration began at 10%-25%.

These tariffs have since been increased to 50% during the second administration, making it clear that past behavior is not necessarily an indicator of future actions.

Physical inventories

It will also be interesting to see how the US physical market reacts.

The Section 232 investigation has attracted significant material to the US ahead of a potential ban on cathode imports. A portion of this has gone to Chicago Mercantile Exchange warehouses — the total is currently 223,407 tons compared with 97,504 tons on Jan 21, the day after Inauguration Day in the US when copper was first identified as being in the administration’s sights.

That’s a huge jump for Comex warehouses, which currently have 44 brands of high-grade copper approved for delivery. The majority of approved brands are produced in the US by Freeport as well as in Chile by Codelco, BHP and Antofagasta.

However, there are also many brands of high-grade copper that are not eligible for delivery to Comex but have nonetheless made their way to the US and are being stored ex-Comex. The unregistered material — which is good quality and not off-spec material — is currently trading at a discount to Comex-approved brands.

It’s likely that any metal in the US after August 1 will be the first port of call for consumption, providing a buffer of sorts for a while.

Any metal hoping to make it to the US in the next three weeks would have to be on the water and relatively close already to evade tariffs. Some traders say they have been using air freight to send copper to the US.

Arbitrage

The tariff speculation has already driven a sharp divergence between US and global copper prices, pushing Comex copper prices to a record high. This reflects growing supply concerns in the US, which imported over 750,000 tonnes of copper in 2023, trade data shows.

London Metal Exchange copper prices have meanwhile declined, at one point widening the arbitrage between the Comex and LME prices to nearly $3,000 per tonne in a reflection of regional dislocation rather than global demand strength.

If implemented at the proposed 50% level and without exemptions, market participants fear tariffs could distort global trade flows, leading to a buildup of surplus material outside the US.

A Chilean exemption, incidentally, would almost certainly crush the arbitrage. That is because Chilean copper could continue flowing into the US tariff-free, relieving US supply pressure, undercutting speculative buying, and shrinking the price spread between Comex and the LME.

There is also the potential for tariffs to trigger substitution trends, especially toward aluminium or fiber optics in sectors like power grids and data centers, due to higher input costs.

Absent clear policy signals, copper markets will likely remain in flux. The pricing gap between LME and Comex is likely to widen further, forcing global producers to rethink not only where they ship copper, but how they structure deals — from long-term contracts to spot pricing strategies.

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Read more coverage on our dedicated Hotter Commodities page here.