The copper market shows how tariffs are putting traders and businesses in a bind

CNBC

a day ago

Lingering uncertainty over the 90-day suspension of President Trump's high tariffs could scramble some traditional market signals as traders and businesses try to get ahead of government policy. Copper is one asset caught up in such a push-pull scenario, according to Morgan Stanley. The metal, sometimes referred to as " Dr. Copper ," has a history of serving as a leading economic indicator due to its wide use in industry. Viewed from that lens, it should be bolstering confidence on Wall Street right now. The front-month contract for copper futures has gained more than 5% since early May — though it is still well below its high of the year reached in late March, right before tariff fears shook markets. @HG.1 YTD mountain Copper futures are trending higher over the past month, though still below the highs of the year. Equities tied to copper are also doing well, with Freeport-McMoRan up more than 11% over the past month, and Southern Copper higher by 8%. However, reality may not be that simple. Amy Gower, commodities strategist at Morgan Stanley, said in a note to clients Tuesday that several factors are muddying the picture for copper, including "front-loading" from U.S. companies who are buying up the metal now, before potential new tariffs take effect. "Copper faces diverging market forces. [London Metal Exchange] inventories are depleting rapidly as copper is pulled to the U.S., boosting timespreads and prices, but China market signals are weakening, suggesting downside risks to come," Gower said. In February, President Donald Trump signed an executive order directing the Commerce Department to look into the possible need for tariffs on copper. That levy would be separate from, and possibly in addition to, the tariffs on shipments from individual countries. If companies keep buying up copper for fear of future tariffs, that could create an "upward squeeze," Gower said. But the supply-demand picture could also change quickly and pull prices down instead. "Already in April, China exported 77kt of copper, and this will likely have continued in May/June, which may provide some relief to LME inventories. On top [of that], the strong solar installations (+70% YTD in Jan-April) are expected to slow from June as new power tariffs come in ... while U.S. demand will slow if copper tariffs are announced," Gower said. — CNBC's Michael Bloom contributed reporting.