For what reason is the price of copper increasing?

While the price of the red metal is declining elsewhere, copper prices have surged in the US due to fears of an impending 50% copper tariff

Yesterday (8 July), President Donald Trump threatened to impose a 50 percent tariff on copper imports into the United States, which caused the price of the red metal to reach a record high.

"We're doing copper today, and I think we're going to make the tariff on copper fifty percent," Trump told reporters.

The Commodity Exchange (COMEX) saw a 13 percent increase in copper futures prices to £5.69 per pound, as US traders scrambled to secure supply of the vital industrial metal before the tariff went into effect.

"US buyers have hurried to bring in copper ahead of schedule due to the impending tariffs," stated Tom Bailey, HANetf's head of research. However, not all of this metal is being used. It's either locked in financing agreements or sitting in warehouses. The high premiums in the US make exporting unfeasible.

Bailey claims that this so-called "trapped copper" may limit supply to the rest of the world, which would raise prices.

Considering that copper tariffs have long been anticipated, the market's response is a little surprising.

"Markets have known that copper tariffs could be imposed since February because a Section 232 investigation has been in progress," stated Stephen Hare, lead economist at Oxford Economics.

Hare claims that yesterday's volatility was caused by the proposed tariff's unexpectedly high level.

"I think markets were expecting that to be a little bit lower, probably closer to between 10 percent and 25 percent," he stated.

Are the prices of LME copper increasing?

It seems that Trump's remarks have caused copper prices outside of the US to decline, in contrast to COMEX copper. Following yesterday's decline in copper trading on the London Metals Exchange (LME), the premium for US-traded copper over London-traded copper reached a record 25 percent.

The reason for this seems a little counterintuitive, but it's because markets have been expecting a copper tariff to be imposed for a long time.

Before the tariffs took effect, Hare stated, "there was a huge arbitrage opportunity to try and ship as much copper to the US." Although the global supply of copper is currently exceeding the demand, this has reduced supply on other exchanges, driving up LME copper prices.

The window of opportunity for arbitrage is closing as copper tariffs become more widely known and may be imposed soon. The supply of copper outside the US will probably rise slightly as a result, which will cause ex-US prices to decline.

When might tariffs on copper go into effect?

The timing of possible copper tariffs will also significantly impact copper prices outside of the US market.

According to a research note by Morgan Stanley commodities strategist Amy Gower, "if they come into effect in ~3 weeks, shipments already on route to the US will likely try to get there still, meaning the ex-US markets shouldn't face excess cargoes immediately." However, shipping any additional cargo within a three-week window will be more difficult, which will reduce the number of ex-US markets in the future.

Trump's proposed 50% copper tariff has not yet been formally confirmed, so there is no set date for when it will go into effect. When CNN questioned the White House about its timing, they initially did not reply.

Later, Howard Lutnick, the secretary of state for trade, proposed that the copper tariff might be implemented on August 1st or late July, giving US companies that depend on copper supplies only a few weeks to guarantee supply at current levels.

What prospects does the price of copper have for the future?

Long-term copper price dynamics are part of a larger structural narrative. This important industrial metal, like silver, finds use in a wide variety of contemporary technologies.

According to Bailey, "Copper is at the center of an impending supply-demand crunch." Demand is rising as a result of grid upgrades, the quick expansion of AI data centers, and the continuous urbanization of emerging markets. The supply base, on the other hand, is getting older, more costly, and less dependable.

Because of these different demands, copper is "fast becoming a strategic resource," according to Bailey.

Bailey continued, "It has put itself at the center of trade policy and geopolitical risk due to its role in AI infrastructure and renewable energy." Copper may become more influenced by politics than by geology, much like oil did in the 20th century.

What are the financial implications of rising copper prices?

Since copper is essential to electronics and a host of other everyday expenses, rising copper prices should theoretically result in higher inflation. For example, the majority of the pipes in your home are most likely composed of copper, which raises the cost of any construction or remodeling project.

The good news is that, as we have seen, the price of copper is only rising in the United States. They are traveling down from abroad.

Hare stated, "At this time, the US consumers will bear a greater portion of that total cost." "The UK ought to have some degree of insulation.

Hare stated, "We are executing a downturn in US industrial production over the next couple of quarters, just because of the impact that the wider tariffs are having."

Fears that Trump's reciprocal tariff regime would trigger a US recession have been prevalent since he first announced it in early April.

Although the supply of copper currently exceeds the demand, this could change in the future.

Echoing Bailey's opinions, Hare stated, "On current projections, copper supply is not going to keep pace with levels of demand over the long term." We anticipate that, in the near future, this will only be a brief increase in volatility; once the tariffs are somewhat more clear, prices should decline again.

But we have a lot of optimism about copper prices in the long run.