Copper prices have fallen from their recent three-month highs. This price decrease is also reflected in the London Metal Exchange (LME) spread, which has moved back into contango.
A contango market indicates that the future price of a commodity is higher than its current spot price, suggesting that traders expect prices to rise over time.
“LME copper retreated from over three-month highs on Monday, while the benchmark cash-to-three-month spread – having moved into backwardation for the first time since June 2023 on Friday – has now eased back to contango,” analysts at ING Group said in a note.
Short-covering on the LME ahead of contract expiry amid expectations of US tariffs on copper triggered a sharp move in the key copper spread last week.
At the time of writing, the three-month copper contract on the LME was at $9,390 per ton, down 0.1% from the previous close.
Copper likely to attract tariffs
US President Donald Trump has indicated that copper may be the next target for import tariffs, following his announcement last week regarding tariffs on aluminum and steel.
While he has not specified a timeframe for the implementation of copper tariffs, he has suggested that it will take longer to put into effect compared to the tariffs on aluminum and steel.
This move has raised concerns among copper exporters and industries that rely on copper as a raw material, as it could lead to higher prices and disruptions in the global copper market.
The looming threat of tariffs being imposed has spurred expectations of a temporary period of tightness in the US copper market.
This anticipation has triggered a strategic response from traders, who are actively transferring copper from the global LME warehouses to the US.
Arbitrage opportunities
This movement is driven by the desire to capitalize on the arbitrage opportunities that arise from the price differentials between the two markets.
“The arbitrage between the CME and the LME contracts has widened, with the CME premium now standing at over $1,200/t – more than 10% of the LME price,” Ewa Manthey, commodity strategist at ING Group, said in a report.
That spread came off that record to above $900 on Monday.
Source: ING Research
Prices in the US are up more than 20% this year, having hit their highest level since 2024, while the benchmark LME price is around 10% higher year-to-date, according to the ING Group.
Manthey said:
There is a further upside risk for copper prices in New York if tariffs are applied; however, the spread risks a pullback if any potential tariffs fall short of expectations.
US dependent on copper 0imports
The US heavily depends on imported copper to meet its domestic consumption needs. Data from the US Geological Survey highlights that approximately 45% of the copper used within the US is sourced from other countries.
Source: ING Research
This dependence on foreign copper underscores the importance of global trade and supply chains for the US economy.
Among the countries that supply copper to the US, Chile stands out as the largest contributor, accounting for around 35% of total US copper imports.
This makes Chile a crucial partner for the US in ensuring a steady supply of this essential metal. Following Chile, Canada holds the second position as a major copper supplier to the US, contributing approximately 26% of the total imports.
The reliance on imports for such a significant portion of its copper consumption highlights potential vulnerabilities for the US, such as disruptions in global supply chains due to geopolitical events, trade disputes, or natural disasters.
“If implemented, tariffs would be bearish for copper and other industrial metals in the context of slowing global growth and keeping inflation higher for longer,” ING Group said.
“With growth in the US likely to slow on the back of tariffs and China already struggling to revive its economy, demand for copper and other industrial metals is likely to weaken.”
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