Tariff policies leading to a copper supply surplus will reduce the price bubble in the US

The US plan to impose a 50% tariff on copper has driven US copper premiums to record highs, but premiums are expected to pull back as inventories built up by traders in response to the tariff are gradually released.

According to Xinhua News Agency, US President Trump said on the 8th that a new 50% tariff would be imposed on all copper imported into the US, but did not disclose the specific time when the new tariff would take effect.

According to CNBC, after the cabinet meeting, US Secretary of Commerce Lutnick said that the Commerce Department had completed its investigation into copper imports, and he expected the new tariff "to be implemented possibly by the end of July or August 1st."

The US launched a related investigation in February. Analysts at the time predicted that the tariff rate would be set at 25%, a level sufficient to trigger hoarding behavior and cause COMEX copper prices to rise by 25% from early January to Monday.

Trump's announcement on Tuesday drove US COMEX copper futures to trade at a premium of over $2,920/mt compared to London Metal Exchange (LME) copper futures, which is recognized as the global benchmark price.

"Once the tariff noise related to the US subsides, we expect US copper prices to fall and converge with LME prices," said Tom Price, an analyst at Panmure Liberum. He noted that US copper demand is weak and forecasted a 16% YoY decline to 1.32 million mt this year.

The uncertainty surrounding tariffs is the main reason for the decline in demand, as it stifles economic growth. The latest data shows that the US manufacturing sector, a driver of copper demand, is in a state of contraction.

Meanwhile, US inventory levels are very high.

Based on trade data from January to May and B/L data for June, Macquarie analysts estimated that total US copper imports in the first half of the year were 881,000 mt, while actual demand was approximately 441,000 mt. "This means there is a surplus inventory of 440,000 mt."

*As US inventories rise, LME inventories fall*

Part of the surplus inventory has been shipped to COMEX warehouses, with copper inventories reaching 221,788 short tons (201,203 mt) as of July 8th, an increase of over 127,000 short tons (135%) from late March when global copper began arriving at US ports.

Most of the copper shipped to the US came from the LME. As of the end of June, LME copper inventories had fallen by 66% from mid-February to nearly 90,000 mt, the lowest level since August 2023.

Some of the copper shipped to the US will be stored in US free trade zones - meaning they do not need to clear customs - making it easier to export.

Copper stored in COMEX warehouses, which operate on a duty-paid basis, will be harder to export, but not impossible.

"There is no reason to think that copper that has been cleared cannot be re-exported," said Duncan Hobbs, research director at commodity trader Concord Resources. "But there needs to be a financial incentive, such as a reversal of the COMEX premium."

For sellers looking to offload surplus metal, the LME is an option, but it will be difficult in the US as LME warehouses are located in free trade zones and typically store duty-free metal.

Cleared metal can be sold on the LME and stored in its warehouses, but the price must be high enough for sellers to recoup the duties they have paid.

Industry sources said the possibility that the US might exempt certain countries from tariffs would add uncertainty and could potentially weaken US copper prices.

One possible candidate is Chile, which accounted for 70% or nearly 646,000 mt of US copper imports last year, according to Trade Data Monitor. The US has a trade surplus with Chile, making it a viable candidate for exemption.

Citi analyst Tom Mulqueen expects Canada, Chile, and Mexico to eventually "get a lower 25% tariff" as key partners.

Currently, traders who rushed to position themselves for tariffs are holding some of the world's most expensive copper - metal that could be difficult to sell unless premiums hold.

(Comprehensive report from Wenhua)