US copper tariff changes again, with taxation scope falling short of expectations [Wenhua Interpretation]

Event: The US White House stated on the 30th that Trump signed a proclamation announcing the imposition of tariffs on several categories of imported copper products. The proclamation indicates that a 50% tariff will be generally imposed on imported semi-finished copper products (such as copper pipes, copper wires, copper billets, copper plates, and copper tubes) and copper-intensive derivative products (such as pipe fittings, cables, connectors, and electrical components) starting from August 1. The White House stated that copper input materials (such as copper ore, concentrate, matte copper, copper cathode, and copper anode) and copper scrap are not subject to "Section 232" or reciprocal tariffs.

Market Reaction: COMEX copper prices plummeted continuously, dropping by over 18% on July 30th, and the decline continued today. LME copper and SHFE copper showed relatively small reactions. As a result, the price spread between COMEX copper and LME copper narrowed sharply from above $2,500, even falling into negative territory at one point, and the regional premium structure completely collapsed.

Interpretation: The US's move to impose tariffs on imported copper clearly surprised the market, as the scope of the tariffs fell significantly short of market expectations. The main reason is that in early July, the US President indicated consideration of imposing a 50% tariff on copper imported into the US. At that time, the market generally believed that the tariffs would be imposed on refined copper, with the possibility of imposing tariffs on other copper products. However, this statement directly excluded various copper raw materials and refined copper, implying that there would be no increase in the subsequent import costs of US copper, and the logic of the previous strength in US copper prices no longer held. As a result, COMEX copper prices fell sharply.

Due to the collapse of the extremely high and distorted premium structure of US copper caused by the sharp decline in COMEX copper prices, traders will no longer have any incentive to transport copper from other regions to the US, and the US's siphoning effect on global copper will completely disappear. Moreover, before this, US copper imports this year had already approached the total imports of last year. Therefore, in the remaining time of this year, without the driving force of price spreads, the inflow of copper from other regions to the US may also be relatively limited, and there is even the possibility of re-exports. The market continues to worry about more copper being transferred to LME delivery warehouses or flowing into major consumption regions such as China. Since LME copper and SHFE copper did not continue to follow the rise in US copper prices in early July, they did not follow the sharp decline this time either. Against the backdrop of a weakened impact of tariffs on refined copper, the trends of LME copper and SHFE copper will return to their respective supply and demand dynamics. Since early July, LME copper inventories have accumulated by nearly 50,000 mt, with registered warrants still increasing recently. Today's data shows a decline in cancelled warrants, and there is still an expectation of a rebound in LME copper inventories in the future. Domestically, the off-season for consumption continues, and the sharp decline in US copper prices may close the export window, which will further test the resilience of domestic demand.

However, it is worth noting that Trump did not rule out the possibility of imposing taxes on copper cathode in the future. Trump stated that he might still impose further tariffs and requested Lutnick to provide an update on the domestic copper market by June 2026. At that time, Trump will assess whether to implement phased universal import tariffs on copper cathode, starting with a 15% tariff from 2027 and a 30% tariff from 2028. Looking back at the US's rhetoric on imposing taxes on imported copper this year, it has been relatively inconsistent. Therefore, it is still necessary to be vigilant about the impact of policy changes on the market.

In addition, the US executive order also requires measures to be taken to support the domestic copper industry, including mandating that 25% of high-quality copper scrap produced within the US must be sold domestically. In fact, since the US started wielding the tariff stick abroad, the increase in costs has already led some domestic traders to suspend importing US copper scrap. According to customs data, the US has already begun to exit the ranks of major suppliers of copper scrap to China in the first half of this year, with alternative supplies from Asian countries such as Thailand, Japan, and Malaysia significantly increasing. Although with the pullback of US copper prices, US copper scrap prices may also decline, potentially leading to a rebound in US copper scrap exports, the US's restrictions on copper scrap sales may still limit local copper scrap exports. It is still necessary to monitor changes in the supply of copper scrap import sources in China.

(Wenhua Comprehensive)