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The annual CESCO industry week in Santiago – the capital of Chile, the world’s largest copper producing nation – drew to an end on Friday April 11. Many copper producers returned home with little more clarity than they had at the start.
That’s hardly a surprise. The week has seen the introduction of reciprocal tariffs by the US on imports from about 90 countries, before a 90-day pause was announced.
Copper was exempt from these tariffs, as well as from a universal 10% tariff that remains. But that may not be the case for long, because the US is in the middle of a Section 232 investigation into copper which could result in tariffs on imports at some point in the future, just like those already in place on aluminium and steel.
China, on the other hand, has not received the same reprieve, with frictions escalating to the point of tariffs as high as 145% being imposed on the Asian country, which is the world’s largest consumer of copper. It, in turn, has imposed 125% tariffs on imports from the US.
The value of the dollar has fallen, stock markets have been on a mostly downward trajectory, and the price of key commodities, including copper, has declined. The uncertainty created by the on-off nature of tariffs is leading to a loss of confidence, as demonstrated by the recent sell-off in US government bonds.
But if you listened to many of the world’s leading copper producers, you could be forgiven for thinking that none of this was happening.
Their message was loud and clear: it is important to stay calm and flexible, and not lose sight of the long-term need for copper amid short-term distractions such as tariffs and geopolitics.
“We’ve learnt, in the 54-year history of Codelco, not to base our decisions on what happens on one day or in one week,” Maximo Pacheco, the chairman of Codelco, told Fastmarkets at the start of the week. “We are in a long-term, cyclical market, and the fundamentals for us are our competitive position.”
Pacheco’s view is being echoed publicly by other leading copper producers, including Anglo American and Rio Tinto.
Not all producers are singing from the same song-sheet in public, however. The chief executive officer of Germany’s Aurubis warned that the indirect effects of tariffs could lead to delayed or deferred investments over time, and described the possibility of Section 232 tariffs on copper as “very counterproductive.”
Perhaps the person most vocal about the potential harm of the tariffs was Kathleen Quirk, CEO of Freeport-McMoRan, which accounts for about 70% of copper production in the US.
She warned that the possible damage to the global economy – to which the price of copper is intrinsically linked due to its use in key sectors such as construction, decarbonization and mobility – could put the company’s US production at risk. That is the opposite of the goals of the US government, she told Fastmarkets.
It is very possible, perhaps probable, that the attitude behind the scenes of many companies is different to the one being publicly lauded. The world’s two largest economies cannot go head-to-head in a trade war with no fallout on global growth, financial markets or trade.
The commercial teams of many copper producers throughout the supply chain have been scrambling to meet with clients, not just during the CESCO event but at meetings around the world over the past week or two.
Suppliers to the US want to reassure their clients that they are reliable, and work out contingency plans in the event that sectoral tariffs are applied to copper in the future.
It is not just suppliers to the US affected; the situation applies across the globe, including China.
If the past week has taught financial markets anything, it is that things can ‘turn on a dime.’ The potential reintroduction of tariffs remains a very real possibility, leaving buyers and sellers constantly on edge while they hope for the best and prepare for the worst.
The threat of future tariffs has seen the steady inflow of physical copper to the US before their imposition, pushing inventories at Comex warehouses to almost 112,000 short tons, from around 93,000 tons at the start of the year.
The arbitrage between the Comex and London Metal Exchange copper contracts flared out to record levels last month, adding to sellers’ problems.
It is still unclear how much copper cathode is sitting off-warrant and not yet registered in Comex warehouses. Eventually, it will have to be discounted and sold below Comex when new inventories come in. Warehouse companies say that volumes are high, and that more is making its way to US shores.
US copper scrap exports have shrunk while the markets make sense of the tariffs, participants say.
Treatment and refining charges (TC/RCs) are meanwhile at record lows in negative territory amid a tightness in concentrate supplies.
This has left many in the market wondering whether benchmark TC/RCs retain relevance these days.
Despite the low TC/RCs, smelting capacity has proven relatively resilient, with very few closures or reductions in utilization rates.
In fact, new smelting capacity is on the horizon, with Adani Group’s new Kutch Copper smelter to be commissioned in the next month, the company’s head of metals, Felipe Williams, said in Santiago this week.
All of these factors are playing out in very real time against the backdrop of a standoff between the US and China. The industry might be putting on a brave face in public, but many participants are privately scratching their heads and trying to stay on top of the tit-for-tat dynamics that are currently playing out.
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.