On Tuesday, July 15, US President Trump proposed a 50% tariff on imported copper, which undoubtedly made headlines. While it may cause market fluctuations in the short term, it could create new opportunities for miners in the long run. Australian miners are in a favorable position. With one foot firmly planted in the US market and the other in global trade, these miners are uniquely positioned to potentially turn this challenge into a growth opportunity, leveraging the changing market dynamics to their advantage.
This is not a minor change but a significant shift that could reshape global copper flows, drive up copper prices, and accelerate the approval of US projects. For investors, the key question now is: Who will benefit and who may face setbacks in this evolving landscape?
**What are the reasons behind the push for copper tariffs?**
Copper, often referred to as the "metal of the future," is crucial for everything from EVs to renewable energy. As global demand surges, it has become a strategic resource, one that the US is eager to secure domestically.
Trump's 50% tariff on imported copper aims to reduce the US's reliance on foreign resources, particularly from Chile, Peru, and other South American countries. Currently, the US relies heavily on imported copper, making it vulnerable to supply chain disruptions. By imposing tariffs, the US aims to boost domestic production and maintain a stable copper supply as it transitions to clean energy.
Meanwhile, the world is facing an impending supply deficit. Based on current mining activities and the growth in demand for EVs and renewable energy, some predict that by 2030, the copper supply gap could reach as high as 6-8 million mt. Aware of this challenge, the US is now taking action to protect its interests before the shortage arrives. This tariff is not just a trade policy; it is a strategic move to reshape global copper supply and ensure future growth.
For large miners, this move could trigger a shift in global trade routes and bring new opportunities. However, whether this gamble will pay off remains to be seen.
**How will this affect global copper supply and demand?**
A 50% tariff on imported copper by the world's second-largest copper consumer could shake up the market.
This could lead to three major ripple effects. First, it will divert US demand from traditional copper-exporting countries, including Chile, Peru, and other major suppliers in Latin America. This demand may shift to domestic producers or countries exempt from tariffs, if any.
Secondly, we may see an acceleration of domestic projects in the US, even those that were previously stalled. It is worth noting that permit delays and environmental hurdles have been impeding US copper projects for years. Tariffs may ultimately drive regulatory action.
Thirdly, tariffs may exacerbate an already impending copper shortage.
Rising input costs and disrupted trade flows will further tighten the market. LME copper prices have already been hovering around $12,000 per mt, and if tariffs come into full effect and supply tightens, copper prices may climb further, perhaps breaking through the $12,500 per mt mark. Investors should pay attention to the backwardation of the futures curve (a signal of tightness in the spot market) and the increase in speculative inflows into copper ETFs.
**Copper Price Estimate After Tariff Threat**
Analysts say that when Trump announced the possibility of imposing a 50% tariff on copper imports, it immediately caught the market's attention. If history is any guide, we can expect a significant price increase, similar to the reaction when the US imposed tariffs on aluminum in 2018. At that time, aluminum prices surged nearly 20% due to supply disruptions hitting the market. With copper becoming a crucial component in everything from EVs to renewable energy, a similar surge is likely on the horizon.
If we look at copper futures on the London Metal Exchange (LME), we may see spot prices higher than futures contracts, i.e., backwardation. This implies tight market supply, and given the US's heavy reliance on copper imports from Chile to Peru, tariffs may create bottlenecks, driving copper prices even higher. In short, the world needs copper, and tight supply may push copper prices to new highs.
In the medium and long-term, tariffs may ignite a recovery in capital expenditure by miners. Large miners may ramp up exploration and production efforts to capitalize on the benefits of rising copper prices. Estimates suggest that by 2035, the global copper shortage may reach as high as 30%, so as prices rise, there will be more investment in copper projects, particularly in the US.
In summary, while tariffs may trigger some short-term price increases, the broader outlook is clear: in the long run, tight supply, rising demand, and price increases may make copper a more profitable target for investors.
**Conclusion: Tariffs May Backfire, Leading to a Copper Industry Boom**
In the short term, a 50% copper tariff policy may disrupt global trade, especially for exporters reliant on the US market. As the copper supply chain adjusts, prices may rise, leading to increased costs and potential market volatility. Due to limited market access, some exporting countries, particularly Chile and Peru, may feel the pain immediately.
However, the long-term outlook is more optimistic, especially for Australian miners. While some companies may struggle to cope with short-term disruptions, those with a clear strategic positioning and diversified markets will benefit. Limited supply drives up copper prices, which will boost the profitability of miners, especially those with operations in the US.
The rising feasibility of US projects, coupled with growing demand from industries such as EVs and renewable energy, presents significant opportunities for miners ready to capitalize on the price increase. For investors, this may mean improved sentiment towards copper mining stocks.
(Wenhua Comprehensive)
