Trump's watered-down copper tariffs almost crush Comex premium
Trump said on Wednesday the United States would impose a 50 per cent tariff on copper pipes and wiring, but the levy fell short of the sweeping restrictions expected and left out copper input materials such as ores, concentrates and cathodes.
The surprise move dragged down US copper prices more than 18 per cent on the Comex exchange and unwound a large part of the premium over the London global benchmark that had grown in recent weeks, with shipments diverted there in anticipation of higher domestic prices.
"We think the LME flips to a premium in the short term due to excess inventories in the US," Anant Jatia, founder and chief investment officer at Greenland Investment Management, a hedge fund specialising in commodity arbitrage trading, told Reuters.
"Over time Comex moves back to a premium as inventories draw and downstream tariffs leave a sustained US premium."
Benchmark LME copper gained 0.9 per cent to US$9,785 a tonne after markets opened on Thursday.
US September Comex copper futures briefly hit US$4.5095 a pound (lb) or US$9,941.6 per tonne, down 19 per cent, shortly after the LME opened before moving back up to hover around 4.5635 a lb or 10,061 a tonne.
At the low, the premium over the London benchmark had fallen to just US$157 a tonne from recent levels above US$3,000 a tonne.
That premium has sucked in enormous volumes of copper from around the world this year. As recently as a few weeks ago, traders were still redirecting cargoes to the United States in a rush to get copper into the country before the tariffs.
"What's a fair price for US copper? At US$4.5/lb, it's already returned to this market's pre-tariff levels. That seems fair to me," said Panmure Liberum analyst Tom Price.
Trump first teased the tariff in early July, implying that it would apply to all types of the red metal, ranging from cathodes produced by mines and smelters to wiring and other finished products.
Yet in a proclamation released by the White House, the administration said the tariff will apply starting this Friday only to pipes, tubes and other semi-finished copper products, as well as products that copper is heavily used to manufacture, including cable and electrical components.
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