Trump imposes 50% tariffs on copper imports, excluding refined metal products.
US copper prices plunge 22% on Comex after initial trader rush and shock.
Exemption of refined copper disrupts global trade, sparks re-export speculation.
Tariffs target semi-finished goods like wires, pipes, cables, and connectors.
With US President Donald Trump imposing 50% tariffs on copper imports, the global copper market has faced a shock leading to unprecedented policy swings and trade dislocation.
Despite the tariffs on copper, Trump has exempted refined metals from it, ones that are the mainstay of international trading. As a result of this step, there has been a record plunge for US prices, following a period of high profits for traders who transported metal to America before the levies entered into the market.
Speaking to Bloomberg, Li Xuezhi, head of research at Chaos Ternary Futures Co., a unit of a commodities hedge fund at Shanghai said, “This has badly deviated from market expectations.” He further noted that those betting on higher US prices have “wasted all their efforts” and global copper flows will return to normal.
Copper futures at New York’s Commodity Exchange fell by more than 22% - the highest ever, as traders recalibrated the value of metal in the US versus the rest of the world. As prices on the London Metal Exchange fell by a much smaller margin, the front-month futures of Comex came to a discount against the LME benchmark, from a 30% premium, more than a week ago.
Exempting refined copper will disrupt global trade of the metal that plays a crucial role in the global economy, given its widespread usage in electrical wiring. Currently, massive volumes of the same are in US warehouses and there’s already speculation regarding potential re-exports.
Copper Markets React
The US prices had soared higher as compared to the rest of the world when Trump announced about the likelihood of tariffs earlier this year. In fact, major traders scrambled to get metal to American ports, in a trade that some industry experts said was the biggest of their lifetimes.
Early in July, Trump announced the tariff would be a higher-than-expected and that led to a last-minute rush, with at least one copper-laden ship heading for Hawaii before the end of this month.
“There have been a lot of participants shorting the Comex-LME spread,” Zhou Xiaoou, an analyst with Zijin Tianfeng Futures Co told Bloomberg.
According to analysts at Goldman Sachs Group Inc., they were taken aback by the exemptions. However, they stated that they don’t see it as something changing market fundamentals and thereby doesn’t expect large-scale re-exports from the US.
Copper was trading 0.6% lower on the LME at $9,642 a ton as of 11:10 a.m. London time, while Comex copper was 22% lower at $4.37 a pound.
Trump’s Copper Shock
The US president’s announcement indicated his white-knuckle approach to trade policy but also the challenges he faces in revamping America’s metals industry. As per some of the key players in the US copper sector, the country does not have sufficient capacity to replace all its imports so quickly.
The 50% tariff announced on Wednesday will be levied on semi-finished products such as pipes, wires, rods, sheets and tubes and to copper-intensive goods like pipe fittings, cables, connectors and electrical components, the White House statement noted. On the other hand, less-processed goods like ore, concentrates, mattes, cathodes and anodes are not subject to the tariffs.
