Copper Tariffs: Not So Terrifying After All?

On July 30, 2025, President Donald Trump announced the imposition of 50% tariffs on select copper products, crucially exempting refined copper, the most significant trading form. This decision triggered the largest historical drop in copper prices on the US COMEX exchange, while simultaneously stabilizing the London Metal Exchange (LME). Although LME prices initially fell in response, further price convergence is anticipated in the near term, likely driven by adjustments in US rather than European prices.

What Was Donald Trump's Decision?

Effective August 1, 2025, a 50% tariff will apply to the following copper products:

• Semi-finished copper products: Pipes, wires, rods, sheets, tubes

• Copper components: Pipe fittings, electrical cables, connectors

• Copper-intensive products: Transformers, electric motors

• Finished goods: Electrical installations, heating systems

Key Tariff Exemptions

Trump made a strategic decision to exclude critical products that serve as inputs for key manufactured goods:

• Refined copper (cathodes): The primary trading form of copper (purest form).

• Copper ores and concentrates: Raw materials for production.

• Copper scrap: Material for recycling.

• Blister copper and anodes: Intermediate products in the refining process.

How Did the Market React?

Copper prices on COMEX, which had commanded a premium of over 30% relative to LME prices, plummeted, experiencing their largest single-session decline in history yesterday. The price instantly fell by approximately 20%, almost entirely eroding the COMEX-LME premium. It is important to note that significant copper inventories had been built up in the US over the past six months in anticipation of tariffs, which could now lead to a drastic reduction in US copper demand. Inventories reached over 250,000 tonnes, their highest level in over 20 years. This situation will also eliminate any profitability from arbitrage.
The entire year-to-date growth differential between COMEX and LME has completely vanished. Source: Bloomberg Finance LP

What's Next for LME Prices?

Today's price declines on the LME have been limited. The near-elimination of the COMEX premium meant that LME prices could not rise significantly. Nevertheless, the LME's importance may resurface with the removal of risks associated with a halt in US trade. It is worth noting that global exchange inventories have recently increased somewhat, potentially holding back price increases, while inventories in China are contracting. Furthermore, a leading indicator for copper prices, China's credit impulse, is clearly rising, which may indicate moderately positive medium-term prospects for copper. The LME market may also see an influx of investors shifting from the US market, further alleviating concerns about excessive volatility.

Global copper inventories have recently increased, though historically they remain low. Source: Bloomberg Finance LP, XTB

Chinese inventories on the Shanghai Exchange have fallen to their lowest level since 2024. Source: Bloomberg Finance LP, XTB

China's credit impulse is rising to its highest level since November 2024. Credit impulse is a leading indicator for copper prices. Source: Bloomberg Finance LP, XTB

Chile and Peru: Key Beneficiaries

The vast majority of copper supplied to the US originated from South American countries, namely Chile and Peru. Consequently, this situation should positively impact LME prices, as these countries will not need to seek new markets. They will be able to continue exporting refined copper to the US without tariffs. Conversely, Canada, which largely exports finished products, will face significantly higher burdens.

While the US dollar is currently performing very strongly, a positive impact on the Chilean peso cannot be ruled out in the longer term. As observed, the correlation in recent months has been quite high, although a greater divergence has emerged in the last few weeks.

USDCLP remains at elevated levels, but an improvement in the tariff situation could potentially positively impact South American currencies. Source: xStation5

Price Outlook

Copper prices have recently declined and also reacted negatively to Trump's decision to exclude globally traded refined copper from tariffs. The price is reacting to local lows from mid-July and may begin to respond to global fundamentals once more. Important support lies at $9,500 and slightly below that at the 38.2% Fibonacci retracement of the last downtrend. The strengthening US dollar is currently a negative factor for copper. However, a sustained halt in price growth in the long term would only occur in the event of a global economic collapse or a significant increase in supply. Nevertheless, the $10,000 level represents a clear barrier that would require a very positive catalyst to break. It is not out of the question that the recent acceleration in Chinese spending will continue to support global copper prices.