Copper price drops 20% after Trump import tariff

Copper prices collapsed by 20% on Wednesday afternoon and remained low at $4.34 per lb. on Thursday morning after U.S. President Donald Trump excluded the most widely imported form of the metal from his planned import tariffs.

In its statement, the White House confirmed that the 50% import tariff will only apply to semi-finished products and to copper-intensive goods.

The most actively traded COMEX copper futures fell by 19.6% to $4.52 per lb. as of late Wednesday afternoon, the lowest since early May, following the announcement.

Prior to that, U.S. copper prices had been trading as high as 28% above the benchmark futures in London, as traders anticipated the tariff would be applied to all refined metal imports.

“The big shock in all of this is that refined copper will not be included at all, triggering a rapid correction in the COMEX price towards LME, as prior bets on tariff implementation evaporated,” BMO Global Commodities Research analyst Helen Amos said in a note on Thursday. 

There is still a downside risk to COMEX as traders holding stock sell onto exchange and speculative long positions on futures are taken off, Amos said. Chinese buying remains the key for LME prices, which already reflect shrinking U.S. imports since mid-July, she added. 

Defense Production Act thresholds on the share of copper inputs that must stay in-country shouldn’t have much effect on product flows, as scrap (~40%), ore (~70%), and cathode (~90%) domestic share are already above the initial 25% minimum requirement, Amos said. But questions remain on the definition of “high-quality scrap” mentioned in the White House proclamation.

Materials exemption important

Copper market shakeup

The decision is the latest surprise from Trump to upend the copper market. When the U.S. president first launched a probe into copper tariffs earlier this year, U.S. prices skyrocketed relative to the rest of the world and set off a race to ship the metal into the U.S. to beat the tariffs.

Trump triggered another surge in the U.S. copper market earlier this month with the announcement that the tariff would be 50% — twice what most market participants had been expecting — which sent prices to a new all-time high.

Analysts say the move to exclude refined copper — known as cathodes — from the tariffs is likely to further roil global trade flows of the metal. The massive volumes of copper that have been shipped to the U.S. in recent months created a huge stockpile that now may be re-exported.

Cathode impacts

If copper cathodes are excluded, then arbitrage opportunities are gone, said Michael Haigh, head of FIC and Commodity Research at Societe Generale. The market should be able to find some parity again.

“The stated intention to boost U.S. refining capacity may be hard to achieve…without tariffs on refined imports, or without a material shift in copper input material flows (in order to drive down domestic scrap prices),” Amos said. 

The move to differentiate between refined metal and semi-processed products in the tariff policy follows lobbying from the copper industry, with some key players arguing that the U.S. did not have sufficient capacity to replace all of its copper imports immediately. The copper levies will also not stack on top of separate charges on automobile imports, which Trump put in place earlier this year, according to the White House.

– With files from Bloomberg and Blair McBride