Tariff Changes Expected, Copper Market Adjusts to Seek Spot Copper Demand [Institutional Commentary]

I. US Tariffs Implemented, Economic Expectations Significantly Revised Downward

This week, the White House announced a 25% tariff on all imported cars, with Trump reiterating the implementation of comprehensive reciprocal tariffs on April 2. The White House expects that most countries will initially apply a temporary 15% tariff, followed by the swift initiation of bilateral negotiations. Canada, Brazil, and the EU have threatened tariff countermeasures. As tariffs are implemented, concerns over rising inflation and global trade shocks continue to escalate. The US Fed revised its GDP growth forecast for this year from 2.1% to 1.7%, indicating a 0.9% YoY decline in GDP growth compared to last year.

On the data front, US new and existing home sales rebounded MoM in February, and durable goods orders grew 0.9%, exceeding expectations. The revised Q4 GDP growth rate was 2.4%, up 0.1 percentage points from the initial estimate. Additionally, the March S&P Global Manufacturing PMI fell below 50, while the Services PMI slightly rebounded. The March Conference Board Consumer Confidence Index hit 92.9, the lowest since 2021. Overall, US economic hard data remains resilient, but sentiment indicators have significantly weakened, reflecting heightened tariff concerns.

In Europe, the Eurozone March Manufacturing PMI rose to 48.7, up 1.1 percentage points MoM, while the Services PMI fell to 50.4, down 0.2 percentage points MoM. The ZEW Economic Sentiment Index rose to 39.8, up 15.6 MoM, and Germany's March IFO Business Confidence Index surged. Last week, Germany established a €500 billion fund for infrastructure and defense spending, which may partially offset US tariff pressures.

II. Copper Tariff Expectations Shift, Copper Prices Pull Back to Seek Demand Support

This year, US tariffs on imported copper have been a dominant factor in the copper market, especially after the US implemented a 25% tariff on imported aluminum on March 12. Market consensus on a 25% tariff on copper drove copper prices significantly higher. The tariff was widely expected to be implemented in Q4. Since mid-February, the COMEX-LME premium has remained above $1,000, making import arbitrage highly profitable. The market anticipated that prolonged import arbitrage operations would lead to massive copper inflows into the US, creating corresponding shortages in non-US regions, which has been the fundamental logic behind the copper market's surge since March.

However, on the 26th, Bloomberg reported that sources indicated the tariff could be imposed within weeks, and on the 27th, Citi analysts suggested it might happen in May. Considering logistics timelines, shipments to the US now face the risk of not clearing customs before the tariff implementation, significantly dampening expectations of massive US imports.

Since January, LME inventories have decreased by 100,000 mt, and there have been numerous reports of copper shipments from Europe and Africa to North America, while shipments to Asia have been largely canceled. Therefore, an estimated 150,000-200,000 mt of copper is still expected to be imported into the US, with corresponding shortages in non-US markets in Q2, supporting a significantly higher copper price range compared to earlier periods.

On the spot side, last week the TC coefficient for concentrates fell to -$20, and smelter losses continued to expand, strengthening expectations for production cuts. Due to the surge in copper prices and weak end-use demand, low-oxygen rods are discounted by 2,000 yuan against the futures market, while copper anodes are only discounted by 700 yuan, prompting low-oxygen rod producers to switch to anode production. Additionally, customs data showed that scrap copper imports in January and February totaled 360,000 mt, up 13% YoY, with 70,000 mt imported from the US. However, since January, the import price ratio for scrap copper priced on COMEX has significantly deteriorated, and US scrap copper exports began to decline in February, which will be reflected in reduced arrivals in March and a further decline in April. High copper prices have severely suppressed demand, with downstream buying significantly reduced, but reduced smelter arrivals and import clearances have led to a weekly reduction of 10,000 mt in domestic social inventories, while bonded inventories increased by nearly 10,000 mt last week, reaching 110,000 mt, up nearly 100,000 mt since the beginning of the year.

On the news front, Glencore suspended operations at a smelter in Chile due to a production accident, declaring force majeure on shipments. The plant primarily produces custom copper anodes, with an annual output of 350,000 mt in metal content. Against the backdrop of tight concentrate supply, anode production cuts may have some impact on refined copper production, which is bullish.

III. Conclusion

As US tariffs are gradually implemented, financial markets have begun to price in a significant economic slowdown, putting overall pressure on risk assets. Copper is primarily affected by US import tariff policies, and with expectations of prolonged massive US imports being dashed, bulls rapidly exited, leading to a sharp pullback in copper prices. However, a certain amount of excess imports into the US has already occurred, and the fundamental tightness in non-US spot markets in Q2 remains unchanged. Additionally, the intensification of concentrate and scrap copper shortages, coupled with decent seasonal demand in China, suggests that downstream users should accept higher absolute prices compared to January and February. Technically, 79,000-78,000 is a key support zone, and attention should be paid to the release of downstream demand, with opportunities to buy again after stabilization. Next week, the main fluctuation range is expected to be 80,500-79,500.