Copper market grapples with implications of 50% copper tariff

A sense of uncertainty hangs over the copper market ahead of the upcoming 50% tariff on US copper imports from early August. Whilst the tariff now appears inevitable, details remain sparse and market participants are awaiting further guidance on the mechanics of how the tariff will be implemented.

Multiple major copper exporters to the US reported to Benchmark that they were still in the dark as to how logistics, paperwork, and even invoicing will function once the tariff is implemented.

One noted they were uncertain if they invoiced a customer for the CME price, in theory a duty-included price, they wouldn’t have to pay an import duty – adding it also wasn’t clear whether they, or the customer, would have to bear the cost of the tariff and how that tariff value would be calculated.

“Everyone we speak to “knows” how a 50% tariff would impact [copper imports into the US] but they all know different things, so really no one knows,” said one miner source.

“Everyone is diverting units away from the US, no one knows what anything will actually look like so the safest option is to divert units away,” said a second miner source.

Tariff announcement blindsides the market

The short window between the tariff announcement and its implementation has caught some traders off guard. One trader is rumored to have paid a $400 premium for CME deliverable copper in China the day before Trump announced the tariff, later offloading the package for a $75 premium the following day.

Sources noted that the drastic change in tariff policy may cause significant delays on the border for shipping copper, remarking that the tariff may create logistical challenges for US staff on the border due to a lack of consistent understanding of the rules.

Anecdotally, sources reported to Benchmark that they have had aluminium shipments into the US delayed as the border staff didn’t understand the new rules. One source noted that some border staff may struggle to distinguish between copper products like anode, blister, and cathode, despite the fact they look different, which may face different tariff rates and are different in terms of usage.

Why does the CME-LME arbitrage not reflect the 50% tariff rate?

Benchmark notes that the CME-LME arbitrage does not currently reflect the 50% tariff on the LME copper price. There are several possible reasons behind this.

Firstly, there remains uncertainty as to whether the tariff will encompass copper cathode imports from all countries at the 50% rate. Multiple sources told Benchmark they wouldn’t be surprised if some exemptions were granted.

Notably, some speculated that Indonesia could be granted an exemption, as Freeport-McMoran’s production in the nation may be seen as American production overseas – however, there is little evidence to substantiate the speculation.

Elsewhere, Chile has been touted as a possible exemption. But, as Chile can export far more copper than the US imports, giving the Latin American nation a full exemption would negate the goal of the tariff.

A second reason is that the US is currently awash with far more copper stocks than it needs, following months of massively elevated copper imports.

CME copper stocks are up 151% since February 25, following President Trump’s announced Section 232 investigation on copper imports, sitting at 243 kt. The arbitrage may not come to reflect a full 50% until some of this excess stock is soaked up.

Moreover, It is not just visible stocks that are high, sources have told Benchmark that consumers have front loaded significant amounts of deliveries.

Lastly, it is worth noting that the arbitrage may also reflect other market dynamics beyond the spread between CME and LME prices. Copper buyers across the globe normally pay “premiums” when buying copper, these local premiums could in theory play a role in incentivising copper imports into the US, if US copper premiums pushed up as well as CME prices.

Benchmark notes that the LME/CME arbitrage is rarely flat, with the US market often at a premium to the LME before tariffs were even a concern, suggesting the arbitrage could reach over 50%.

Is the aluminium tariff a blueprint for copper?

This isn’t the first time the US has issued a large base metals tariff. Aluminium was hit with the same tariff by the Trump administration earlier in the year.

However, aluminium does not necessarily provide a blueprint for how LME and CME copper prices will react to the tariff. CME aluminium is a duty-free contract, meaning it has not noticeably adjusted to the new tariff.

Rather, what has been seen is a dramatic increase in US aluminium premiums, which now reflect 59% of the LME aluminium price. However, these premiums are delivered and already represented 19.4% of the aluminium price at the start of 2025, before the tariff came in.

Another development is that scrap imports of aluminium into the US drastically increased following the tariff. Presently, it’s still not clear whether copper scrap imports will be tariffed.

If scrap copper imports were to be exempt, this could lead to an increase of copper scrap imports into the US. Although the US is a massive net exporter of scrap, some of this is low quality and it is possible that the US could import high quality scrap, with this higher quality material more usable in semi-fabrication, and, if exempted, potentially cheaper than cathode.