The Copper Market Amid the Tariff Storm: A Plunge! How Should Participants Respond?

This Qingming holiday was not peaceful.

The overseas copper market experienced a sharp decline under the impact of tariffs, with LME copper falling by 8.95% and COMEX copper dropping by 10.21%.

With the implementation of the US "reciprocal tariffs," China quickly introduced countermeasures. How will this tariff storm affect the global market? Specifically, what direct and potential impacts will it have on the copper market? Against the backdrop of a market-wide decline, how should copper market participants respond? Futures Daily reporters interviewed market veterans for timely analysis and in-depth insights on these issues.

How to view this copper price crash?

"In the past 15 years, copper has only experienced larger single-day declines in March 2020 and October 2011 during the European debt crisis. Compared to the pre-holiday closing price in China, LME copper fell by nearly 9%, hitting a new low for the year." Xiao Jing, chief analyst of non-ferrous metals at SDIC Futures, believes that this sharp decline is a systemic risk event impact, not a financial crisis. From the key real economy indicators of major economies, there is no sign of an economic recession yet. The market is more concerned about the uncertain risks and fundamental challenges posed by the tariff war to the global economic order and trade stability.

From the current market performance, Wang Yunfei, head of the investment consulting department at Shandong Gold Futures, told reporters that as of April 3, the main liquidity indicators of the market have not tightened. Therefore, the market is still in the stage of sentiment fermentation, and the actual impact has not yet arrived. Large-scale reciprocal tariff hikes may affect the current fragile global demand in terms of confidence. If the prices of major assets continue to fall, once reaching a certain scale, it may trigger further chain reactions, thereby accelerating a global economic recession.

In the view of Ji Xianfei, a non-ferrous metals analyst at Guotai Junan Futures, the main logic of the current market lies in the impact of Trump's tariff hikes, leading to a general pullback in risk asset prices. The continuous sharp decline in US stocks will also affect the stock markets of other countries to varying degrees. Investor confidence is dampened, and market panic is spreading, increasing the uncertainty of future global asset prices. Currently, the market is more concerned that the US tariff hikes and the countermeasures by the economies subject to these tariffs may lead to an increase in global trade barriers and may also trigger adjustments in the global trade landscape.

How will this tariff storm affect the global market?

"Historically, the US has experienced a period of imposing high tariffs on most goods, and it lasted for a long time." Xiao Jing introduced that in 1930, the US implemented the Smoot-Hawley Tariff Act, significantly increasing tariffs on all imported goods, which led to retaliation from countries around the world, the prevalence of protectionism, and the worsening of the global economic crisis. The sluggish economic environment highlighted the drawbacks of high tariffs. Since the end of World War II, the world has gradually entered the current trade landscape dominated by the US.

This time, Trump's "reciprocal tariffs" plan quickly raised the US tariff level to the highest since World War II. Buffett once stated in a previous interview that "tariffs are equivalent to an act of war." Several US investment banks have raised the probability of a US economic recession this year, and there is a significant divergence in the market's expectations for the pace of the US Fed's interest rate cuts. Global mainstream assets, including gold, have reacted with a consistent rapid decline. This week, the Nasdaq index has entered bear market territory. Silver, which had been stagnant, even with industrial demand accounting for half, experienced a weekly decline of 11.6%, and the gold-silver ratio rose to the highest level since May 2020.

Xiao Jing stated that Trump is using tariffs as a weapon of extreme pressure, and the market needs to pay attention to the reactions of various parties around the US "reciprocal tariffs." Extreme tariff risks will inevitably affect the global economy, and attention should be paid to whether domestic countermeasures will be introduced.

What direct and potential impacts will the copper market face?

In Wang Yunfei's view, this tariff storm has suppressed the short-term and medium-term demand expectations for the global copper market. In the context of accelerating deglobalization, commodity demand is expected to decrease, which will be bearish for copper prices. In terms of potential impacts, the risk of a global economic recession is increasing. Even if market sentiment stabilizes in the future, the deteriorating trade environment will not be conducive to the recovery of investment and demand in the long run.

Ji Xianfei believes that under the impact of the unexpected tariff storm, risk assets have generally fallen, leading to a shrinkage in social wealth, a decline in US and global consumption, and a drop in corporate profits, thereby forming a negative feedback loop of falling prices and declining consumption. From the perspective of copper consumption expectations, the marginal growth points of global non-ferrous metal consumption are mainly in Southeast Asia, China, and the US. The US tariffs on Southeast Asia and China will weaken the previous consumption expectations, and the global copper consumption growth rate may be adjusted downward, changing the previous expectation of tight supply.

Xiao Jing believes that under the impact of systemic risks, copper has turned into a risk asset. After the overseas copper price, which had been bullish with concentrated long funds, was hit by tariffs, a "long killing long" scenario emerged. The tariff game has triggered anxiety about an economic recession, thereby threatening overall copper demand. "If extreme tariffs become a fact that must be acknowledged for a period, the export demand for domestic machinery, integrated circuits, metal products, etc., will be dragged down, and the demand growth rate will be revised downward. The US economy will face considerable uncertain risks."

How should copper market participants respond?

"Compared to the overseas copper price decline of about 10%, the domestic SHFE copper futures have a daily limit of 7%, and there is a certain risk of hitting the limit down after the holiday opening." Xiao Jing stated, but unlike the overseas market, the domestic market is in the peak consumption season, supported by real demand. As copper prices fall rapidly, the previously hesitant pricing orders under high copper prices will take action.

In Ji Xianfei's view, it is currently difficult to assess future copper prices, especially since market sentiment has reached an extreme low. It is hard to decide whether to make a trend-following or contrarian valuation, and it may be necessary to wait for the sentiment to ferment in the next few days before making a valuation.

"Due to changes in tariff policies, the current copper price volatility risk has intensified, and fund management in hedging has become more important." Wang Yunfei suggested that companies should reasonably plan the scale of their positions or use option tools to control risks in actual transactions.

Looking at the supply side, Xiao Jing believes that the game between the mine and smelting sectors has not yet seen a turning point, and the processing fee is still in the negative zone and continues to decline. In Q2, attention should be paid to whether the processing fee can hit bottom. In terms of secondary copper, the US is China's largest importer of copper scrap, involving 400,000 mt of copper import resources. In March, copper prices surged, and the price spread between refined copper and copper scrap did not widen significantly, making the secondary copper line even tighter.

In addition, US copper imports are temporarily exempt from "reciprocal tariffs," and physical logistics still have about a quarter for arbitrage transfer. LME copper inventories will continue to decline, and there is also an expectation of re-export domestically. Therefore, domestic social inventories will continue to flow out. Compared to the overseas market, SHFE copper may mainly experience a resistant decline.

Overall, she believes that fundamental factors may support SHFE copper futures to open the limit down on the first trading day after the holiday, providing some liquidity to the market.

Looking ahead, Xiao Jing suggested continuing to monitor the progress of the tariff storm. After the real economy indicators are actually affected by the tariff impact, and the domestic peak consumption season turns weak or destocking becomes difficult, the domestic copper market will gradually transmit from weak consumption to upstream supply. At that time, copper prices may experience a larger downward adjustment. She believes that copper prices below $8,000/mt are strategically attractive for purchasing. As for futures strategies, if there is a short-term low opening, it is temporarily not recommended to enter new short positions. In the case of a sharp decline in copper prices, the backwardation structure may benefit from spot supply and demand and widen.

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