Unresolved tariffs become the biggest bullish factor for copper prices: Over one million tons of copper flow to the US, LME copper prices break $14,700, hitting a new high.

Unresolved tariffs become the biggest bullish factor for copper prices: Over one million tons of copper flow to the US, LME copper prices break $14,700, hitting a new high.

Copper prices have been hitting record highs, but the real driver of this surge is not a surge in demand, but rather a regional mismatch in global copper inventories: the unresolved expiration of the US refined copper tariff review has maintained a large arbitrage spread between New York and London, continuously drawing freely available copper from around the world to the United States, causing tension in the London Metal Exchange (LME) spot market.

The U.S. Commerce Department had previously recommended imposing a 15% tariff on refined copper starting in 2027, increasing it to 30% in 2028. However, the Trump administration exempted refined copper last year, imposing a 50% tariff only on semi-finished products such as copper pipes and wires, as well as electrical components, and ordered the Commerce Department to review the matter again by the end of June this year. Now that the review deadline has passed, the White House has not made any announcement, and this policy "leave room" has allowed traders to continue rushing to ship copper to the United States.

This "siphoning" effect is directly reflected in the LME: official Comex inventories have increased eightfold since the beginning of last year, exceeding 750,000 short tons (approximately 680,000 metric tons). If off-exchange inventories are included, the copper stockpiled in the United States is widely estimated to exceed 1 million metric tons, roughly equivalent to the annual production of Escondida, the world's largest copper mine. These metals are unlikely to flow back to the global market in the short term, leading to a continued tightening of available supply outside the United States.

Meanwhile, Chinese smelters increased their imports of refined copper due to shortages of copper concentrate and scrap copper, simultaneously boosting demand. Driven by this supply-demand imbalance , LME copper prices broke through $14,700 per tonne on Tuesday, setting a new historical record . For investors, the copper price dynamic has shifted from a macro-demand narrative to a structural revaluation driven by inventory imbalances and policy uncertainties.

Tariff "gaps" maintain arbitrage opportunities, with over one million tons of copper flowing to the United States.

The expectation of additional tariffs on refined copper has pushed New York copper prices above the London benchmark since the first half of last year.

The premium in New York over London was once so high that commodity traders like Mercuria and Trafigura competed to ship copper to U.S. ports. Last year, the Trump administration imposed a 50% tariff on copper pipes, wires, and other semi-finished products and electrical components, but exempted refined copper, only requiring the Commerce Department to review the tariffs by the end of June.

Now that the deadline has passed and the White House has remained silent, the arbitrage window remains open. Even if the tariffs are not ultimately implemented, some analysts and traders expect these inventories flowing into the United States to remain for a long time. If the policy is ultimately implemented, it may trigger a final wave of rush shipments before the tariffs are imposed; if it is abandoned, traders may be able to liquidate positions accumulated over the past 18 months, reversing trade flows.

Project Vault reinforces expectations of copper hoarding, LME cash premium hits a new high since 2021.

The expectation of long-term copper hoarding is also backed by policy.

The Trump administration plans to establish a $12 billion "Project Vault" critical mineral reserve through a public-private partnership. Copper is one of the 60 "critical" minerals identified by the United States that face supply chain disruption risks. The combination of strategic reserves and commercial arbitrage makes it more difficult for copper flowing into the United States to flow back, further tightening the available supply to other markets.

LME warehouses have become a major source of inventory losses.

LME copper inventories plummeted 32% to 205,000 tons from a month earlier, and the cash premium over three-month futures briefly exceeded $500 per ton in mid-August, reaching its highest level since the market squeeze in 2021. Traders had temporarily eased the tension with large-scale deliveries, but a large delivery request at the end of August pushed freely available inventories back to extremely low levels.

China's refined copper imports surge, but supply constraints at the mining end remain unresolved.

The demand side is also changing. China, the world's largest copper consumer, increased its direct imports of refined copper earlier this year due to shortages of copper concentrate and scrap copper faced by smelters. This, coupled with the upward momentum brought by potential US tariffs, suggests that China's copper demand is expected to recover further as the manufacturing sector enters its traditional peak season.

Supply-side constraints are more rigid. Mining disruptions continue from Chile to Indonesia, and unless production recovers in the second half of the year, global annual mining output may decline for the first time since 2017; declining ore grades make mining more expensive and difficult, and environmental reviews have also driven up the cost of new projects.

S&P Global data shows that it takes an average of more than 15 years for a mine to go from discovery to production. Societe Generale analysts believe that arbitrage driven by US trade policies and tariffs will continue to influence copper prices, and copper flowing into the US will continue to tighten physical supply in other regions.

In the long term, the energy transition and the construction of AI data centers provide a solid foundation for copper demand, as copper is indispensable for solar energy, wind power, electric vehicles, power grids, and data centers. As long as the refined copper tariff review remains pending, the regional imbalance in global copper inventories will be difficult to reverse, and the structural strength of copper prices will continue.

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