- HG Copper futures traded in New York surged by over 5% following Donald Trump’s suggestion that imports of this metal—similar to aluminum and steel—could be subject to a 25% tariff.
- The initial market reaction led to a spike in HG copper futures, which started trading at about a 10% premium compared to prices on the London Metal Exchange (LME), further increasing the divergence between U.S. and international market prices.
- Although potential tariffs could permanently push U.S. copper prices above global levels, the current surge might be premature—investigations under Section 232 of the Trade Expansion Act typically take months.
- Current high price levels do not reflect supply and demand fundamentals; however, Saxo analysts maintain a long-term bullish outlook for the copper market. The energy transition, which drives demand for power and electrical wiring, will support the upward trend in the coming years.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, commented that global financial markets remain highly uncertain, reacting to a constant flow of information regarding Trump administration policies. In the commodity markets, price responses to potential U.S. import tariffs and possible retaliatory actions from major trading partners, including Canada, Mexico, and China, have varied significantly.
Crude oil prices are declining amid concerns that a global trade war could negatively impact economic growth and, consequently, fuel demand. Meanwhile, prices of many U.S. agricultural products, including corn, soybeans, wheat, and cotton, have come under pressure after China—the largest buyer of these commodities—imposed retaliatory tariffs on several U.S. agricultural goods.
In his 100-minute speech before Congress, Donald Trump defended his administration’s economic plans, announcing extensive tax cuts and reductions in government spending. He also reiterated his intention to impose, in the name of national security, a 25% tariff on aluminum, steel, and, crucially, copper imports.
HG copper futures traded in New York rose by over 5% following the announcement of high tariffs on this metal. If implemented, this decision could further increase the price gap between the New York market and international benchmarks in London and Shanghai. The initial reaction caused HG copper futures to spike to a 10% premium over LME prices before arbitrage activity prompted traders to take advantage of the wide and potentially premature rise.
Copper Futures – COMEX vs. LME
Although the U.S. president has already signed an executive order imposing a 25% tariff on aluminum and steel imports effective March 12, the copper market’s reaction might be premature. This is because proceedings under Section 232 of the Trade Expansion Act usually take months to complete, meaning the real impact on prices will emerge later than what the market is currently pricing in.
However, a 25% tariff was clearly not what the market anticipated, and traders are now scrambling to adjust prices accordingly—whatever that level may be. Regardless of the final decision on tariff rates (or even their potential cancellation), disruptions to global trade flows are already a reality. This is evident in the precious metals market, where millions of ounces of silver and gold bars have been transferred to U.S. vaults in recent weeks to avoid import duties on metals used to hedge short positions on the COMEX futures market.
Today’s trading session again shows a widening spread between spot and futures silver prices, driven by the sharp rise in New York copper prices and uncertainty over whether tariffs will also apply to silver. Meanwhile, gold has stabilized following the mass transfer of physical stockpiles, which caused a sharp increase in COMEX-monitored reserves to levels not seen since disruptions to transatlantic flows during the COVID-19 pandemic in 2021.
Silver and Gold Reserves in COMEX-Monitored Warehouses
In the near future, until the official announcement of tariff levels, the U.S. copper market is likely to experience increased volatility, partly affecting the London market as well. The global rush to secure copper for U.S. delivery before tariffs take effect will support prices. LME inventory levels will likely decline, which is already reflected in the spot-three-month spread.
After a long period of high supply, this spread had been in a wide contango—an indication of a well-supplied market. However, for the first time in 18 months, the spread has significantly narrowed and reached a flat level.
Saxo analysts maintain a long-term bullish outlook for the copper market, driven primarily by the energy transition, which will lead to a sharp increase in electricity demand—especially in the electric vehicle (EV) sector, data centers, and cooling systems due to rising global temperatures.
However, in the current situation, observed price levels do not reflect supply and demand fundamentals but rather the short-term necessity of relocating metals to avoid tariffs. Paradoxically, in the short term, this could slightly negatively impact global demand forecasts.
Source: Manager Plus
