Copper markets were jolted by President Donald Trump’s vow to impose 50 per cent tariffs on imports of the world’s most important industrial metal, leaving producers and traders weighing the consequences of such a move.
Although US copper prices shot higher after Trump delivered his threat on Tuesday, the global price on the London Metal Exchange sank on Wednesday as traders bet that any tariffs would ultimately hit demand for the metal.
“Eventually, physical demand growth for copper worldwide will come under pressure, as downstream players seek to defer consumption,” said Tom Price, commodities analyst at Panmure Liberum. The US imports about 60 per cent of its copper, primarily from Chile, with the rest met by domestic mines or recycled scrap.
Copper-producing countries digested the news, with Zambia calling for a tariff waiver.
The US flagship infrastructure project in Africa, the Lobito Corridor, a rail link, could be at risk due to the copper tariffs, the chair of state-owned mining company ZCCM told the Financial Times.
“The whole premise of the Lobito Corridor is that these critical minerals such as copper should be going to the US,” said Kakenenwa Muyangwa, the chair of ZCCM. “Hopefully, there could be some waivers down the road.”
Meanwhile in Chile, which has a free trade agreement with the US, mining association Sonami warned that the copper tariffs were “not justified” and could reduce mining investment.
“The threat of a new trade war between major powers introduces volatility into the markets, increases uncertainty about future copper demand, and could affect investment decisions in new mining projects,” it said in a statement.
Inventories of copper on New York’s Comex exchange had surged this year on expectations that Trump would eventually target imports. The metal is widely used in electronics, construction and industrial equipment.
On Wednesday US prices for the metal on Comex were down slightly at $5.53 a pound, a 28 per cent premium to the global benchmark LME price.
That level of premium, well below the 50 per cent tariff proposed, reflects market uncertainty about whether and how Trump would implement any levies, according to Macquarie analyst Alice Fox.
“It is not certain yet, and even when it is signed, it may not be the final answer,” Fox said. “The expectation is that there will probably be some negotiation around it, possibly quotas,” she added.
While Trump told a press conference that copper would face a 50 per cent tariff, the White House has not announced any details, such as what products would be included.
The US in February opened an inquiry into possible copper duties, known as a Section 232 investigation, but the outcome of that process has not been published.
Some mining companies that produce copper in the US could be poised to benefit from the copper tariffs, although diversified miners such as BHP and Anglo American saw their share price fall on the news.
“It really only applies to people who produce copper domestically already today,” said Ben Davis, mining analyst at RBC Capital Markets, highlighting Rio Tinto and Freeport McMoran, which both have US production. “For everyone else it is business as usual.”
Davis also questioned whether the tariffs, if enforced, would actually lead to more investment given how long it takes to build new mines and smelters.
“This is a 10-year project, not a one-administration project, and no one has any confidence that these premiums will last. So who on earth is going to build that stuff?”
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Executives at the world’s biggest listed mining companies said they would only be able to assess the long-term impact once the administration provided details. For example, from Trump’s initial announcements, it is unclear whether different forms of copper, such as concentrate or cathode, would be subjected to the same levy.
“Everyone is taking it with a bit of a grain of salt, in terms of any long-term impact on the fundamentals,” one executive said. “You just don’t know how long it’s going to be there, whether it’s just a negotiating tactic, whether there will be a shift in the percentage or what products it will apply to.”
Howard Lutnick, US commerce secretary, said in a CNBC interview that he expected the duties to be put into place as soon as the end of this month.
Traders said this year’s rush to get copper into the US would probably slow, with shipments set to arrive after August 1 likely to be rerouted to avoid the tariff hit.
Analysts expect that copper prices on the LME are likely to sink over the next six to 12 months, as the tightness in the global market eases. Inventory levels on the LME have been at very low levels, but data overnight on Tuesday showed a slight increase in LME stocks.
