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US copper scrap market participants have said they are looking to transition to using the London Metal Exchange instead of COMEX copper contracts as the underlying price for calculating discount rates — a move that has gained support following dramatic spikes to COMEX rates in the week to Friday July 11.
“A lot… on the consumer side are transitioning or beginning to determine how to switch,” a copper scrap source said on Friday. “The LME is going to feel like the international number in the US and otherwise.”
Conversations contemplating such a switch have been ongoing for some months amid volatility in COMEX prices and historically high arbitrage levels between COMEX and LME rates. But these conversations have ramped up following new statements from the Trump administration on Tuesday, July 8 that copper imports will be subject to a 50% tariff.
A second source noted on Thursday July 10 that several mills had started to switch from using COMEX to calculate rates to using the LME, or even flat out refusing to use COMEX pricing, saying “everyone is going to switch to LME-based formulas, you can see it coming.”
After President Donald Trump said “I believe the tariff on copper, we’re going to make it 50%,” on July 8, the Chicago Mercantile Exchange “went ballistic” according to Fastmarkets analyst Andy Farida, and on Wednesday July 9 “spats of fresh copper inflow have capped the upward price momentum at $10,000 per tonne and flipped the previous triple-digit backwardation into a small contango of $2 per tonne,” Farida said.
According to Marex analyst Ed Meir in a report published on July 9, “the reaction in the copper market to Trump’s announcement was fast and furious.”
An additional round of tariffs was announced by Trump late on July 11, of 30% tariffs on both Mexico and the EU, effective August 1. US-Mexico-Canada Agreement (USMCA) compliant goods are still believed to be exempted, according to Adam Schaffer, vice president of international trade and global affairs for the Recycled Materials Association (ReMA). The announced 50% copper tariffs under section 232 could include copper scrap, though specifics have not yet been released by the Trump administration.
While the vast majority of US copper scrap supply is exported, the implications for higher copper prices have had an impact on copper scrap discounts, particularly given that the arbitrage between the LME and COMEX rates is historically wide, which impacts the ease at which exporters can trade material.
The arbitrage had narrowed slightly to around $2,500 per tonne as of 9am US Eastern time on July 11, down from around $2,700 per tonne on July 10, according to Ed Meir.
“So many wild things are going on at the same time affecting all the trading,” a third scrap source said. “The disconnect between [COMEX] and LME, [the US] dollar weakening, the tariffs coming or going…export[ers] are feeling the pressure on pricing and their spreads are definitely more in line with the LME than [COMEX].”
“It certainly is keeping the conversation interesting lately,” they said. “I think it is great that…the copper can be kept domestically, but at what long-term cost?”
The first scrap source said that the “immediate feedback” following COMEX movements in the week to July 11 has been to pause spot buying based on COMEX spreads. But, they added, a transition for them will “take a couple weeks” and they will look at August and beyond.
“The global market is tethered to the LME [versus COMEX],” they said, which might make it easier for consumers to operate in the market should they switch.
A seller source said on July 11 that they had switched exchanges: “we have moved to quoting off LME, as we only have so much [copper] demand in the US and the rest is exported off LME.”
“I am hopeful that all companies will move to a much more stable index like the LME, and we all just buy off of it instead of [COMEX],” the seller source said.
But not every source agreed that the movement was a guarantee that copper scrap markets would switch from one exchange to another.
A trader said in May that “there’s a reason” for COMEX to have a role in the markets, saying that “COMEX is speculation for a reason” and is “more telling of the times ahead.”
“People act like LME’s the answer, but it’s not the end-all, be-all,” the trader said.
“It has been a brutal week dealing with issues, including cash flow challenges associated with COMEX margin call due to Tuesday‘s incredible surge,” a second seller said, adding that while they were “hearing lots of chatter” about LME vs COMEX, they weren’t “sure that works for us, at least at this point,” noting several contracts still tied to COMEX rates.
Following the jumps in COMEX prices on July 8, US copper discounts rose on the week, though with sources noting a lack of clarity and the expectation that rates would settle back down once COMEX rates resumed some stability.
Fastmarkets’ assessment for the copper scrap No1 copper, discount, buying price, delivered to brass mill US was $0.78-0.83 per lb on July 9, up from $0.50-0.55 per lb on July 2.
And the assessment for the copper scrap No2 copper, discount, buying price, delivered to brass ingot makers was similarly assessed at $1.25-1.30 per lb on July 9, up from $0.85-0.90 per lb on July 2.
US copper scrap discounts are currently assessed as a discount to the most-active traded COMEX copper contract, with data accepted for both LME and COMEX discounts and prioritizing the exchange where there is a majority of activity based on market feedback.
Market sources said on July 9 that they did not expect discount rates to stay at such high levels, and expected a return to “some more normalcy” in the near term. But COMEX rates have continued to fluctuate at these high levels. After the initial jump on July 8 to $5.6855 per lb, the September COMEX copper contract fell to $5.4865 per lb on July 9, then rose to $5.591 per lb on July 10 and to $5.6045 per lb on July 11.
A copper cathode source said on Monday July 14 that they had not heard of the LME switch on primary material, but in general thought that activity last week was a “panic-button reaction” to the president’s tariff announcement.
Overall, sources seemed willing to adapt to the coming market, to whatever exchange may prevail as home to the majority of US activity.
“We will go with what our consumers want, if [a switch] does come to pass,” the third scrap source said.
“As time goes by,” the second seller said, “we will settle into a more usual pattern of trade and hopefully a time of stability,” though “that may be wishful thinking.”
Amy Hinton in Pittsburgh contributed to this report.