MethodologyContact usSupportLogin
But few appreciated just how close the system came to a logistics and pricing headache – and how a little-known technicality in US trade law could have hampered copper’s ability to flow freely.
The key takeaway for traders is stark: if Section 232 were ever applied to copper, they would face essentially two choices – put metal in Foreign-Trade Zones (FTZs) and plan to re-export it, or place it in bonded warehouses and wait it out.
Neither option is perfect, but both allow traders to preserve flexibility under a tariff regime.
FTZ storage lets copper eventually leave the country without paying duties but bars it from London Metal Exchange warranting, complicating cross-exchange trading. Bonded storage keeps LME eligibility but ties up inventory and can be more costly.
Here’s why these options exist.
Under US customs rules, goods entering FTZs can be classified either as privileged foreign (PF) or non-privileged foreign (NPF).
Section 232 would automatically assign PF status to copper entering FTZs, locking in the duty rate at the time of entry. That status cannot be changed, even if the metal is processed, reclassified, or stored for years, a rule intended to prevent importers from avoiding tariffs by holding stock until conditions improve.
While this approach makes sense for enforcing tariffs, it clashes with the LME’s rules.
The LME requires metal in US-approved warehouses to have NPF status, so duties can be calculated when the metal leaves the warehouse. That flexibility is what keeps LME warrants fungible and pricing uniform across stocks.
That’s why if copper had been hit by Section 232, FTZ-stored metal could have entered the US but would have been ineligible for LME warranting – a serious disruption for the global copper supply chain.
The US exchange COMEX, part of the Chicago Mercantile Exchange Group, operates differently.
Its warehouses are entirely domestic, and the copper contract is duty-paid. That means duties are paid on entry to warehouses in order to make deliveries.
Moving copper from COMEX into LME US warehouses would only make sense if the arbitrage were significantly in the LME’s favor to justify the cost and effort.
The workaround is bonded warehousing.
Unlike FTZs, bonded facilities aren’t subject to PF/NPF rules. LME-warrantable copper can be stored in bonded warehouses even under a Section 232 tariff, with duties owed only if the metal enters US commerce.
Many US LME warehouses are bonded rather than FTZ-based, preserving warrant eligibility even if tariffs were applied. Bonded warehouses are storage-only, so processing or manufacturing is not allowed, and space can be tight and more expensive.
But for traders, they offer a way to maintain optionality in a rigid duty environment, and market participants have been scrambling to secure space ever since.
In the end, cathode was spared Section 232 tariffs. But importers had already front-loaded shipments ahead of the August 1 deadline, leaving hundreds of thousands of tonnes in US warehouses and ports — much of it uneconomic under current arbitrage conditions.
The tariff exemption avoided one crisis – preserving LME warranting and cross-exchange fungibility – but the market still faces the challenge of managing the excess copper.
For now, the bonded warehouse loophole provides a crucial buffer, but the risk hasn’t gone away. Should Section 232 ever be applied to copper, the market would face significant disruption, with traders forced to make difficult logistical and financial decisions to keep supply flowing.
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.