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The US price bubble is deflated by the copper glut caused by the tariff threat

The U.S. President Donald Trump’s 50% tariff on the metal has caused a record-high premium in the United States. This is expected to decrease over the next few months, as traders who anticipated the tax will work their way through the system.

An investigation that began in February led to the tariffs. Commerce Secretary Howard Lutnick stated they would likely be implemented by August 1, or even sooner.

Analysts had predicted that the levy will be 25%. That was enough to cause stockpiling, which led to a 25% increase in the copper price traded on COMEX from the beginning of January until Monday.

Trump's announcement Tuesday pushed prices up to a record of $5.6820 per lb, or $12,526 per metric ton. This is a premium over $2,920 for a ton compared to the current price at the London Metal Exchange which is currently around $9600. The market uses this as its global benchmark.

Tom Price, Panmure Liberum's analyst, said: "Once the Trump-related noise subsides, we expect U.S. Copper prices to fall. They will converge with LME Prices as U.S. Consumption is deferred." Tom Price said that the U.S. demand for copper was weak, and predicted a drop of 16% this year to 1.32 millions tons compared to last year.

The uncertainty over tariffs has hampered economic growth.

The latest data from the U.S. Manufacturing sector, which is a major driver of demand for copper, shows that it has contracted.

The U.S. inventory is very high.

Analysts at Macquarie estimated that U.S. imports of copper totaled 881,000 metric tonnes in the first six months of the year, compared to a requirement of approximately 441,000 tons.

This implies a build-up of 440,000 tonnes of excess inventory, consisting of 107,000 tonnes of visible COMEX stock and 333,000 of unreported stocks or purchases pulled forward through the industrial supply chain.

As US stocks rise, London Metal Exchange Stocks fall

The excess copper has been shipped to COMEX-approved warehouses. COMEX's stock of 221,788 short tonnes or 201 metric tons on July 7 had risen by over 127,000 short tons (135%) since late March, when shipments of copper from around the globe began arriving in U.S. port.

The LME is the source of most copper exported to the United States. In late June, stocks had fallen by 66% since mid-February, to almost 90,000 metric tonnes, the lowest level since August 2023. .

The copper that is shipped to the U.S. can be stored in U.S. Free Trade Zones, which means it won't have to clear customs. This makes it easier to ship.

Copper stored in COMEX, which operates on a tax-paid basis will be harder to ship but not impossible.

Duncan Hobbs said that there is no reason why copper cleared by customs cannot be reexported. He was the Research Director for commodity merchant Concord Resources. There would have to be some kind of financial incentive like a reduction in the COMEX premium.

The LME is a good option for those who want to sell excess metal. However, it would be difficult to do so in the United States, as LME warehouses tend not be in free-trade zones, and they typically store metal that has been duty-free.

Metal that has been cleared by customs can be stored and sold at the LME, but the price must be high enough to cover the duty already paid.

Sources in the industry say that the Administration could create exemptions for specific countries. This would reduce the COMEX premium and add to the uncertainty.

According to Trade Data Monitor, Chile was responsible for 70 percent or almost 646,000 metric tonnes of U.S. imports of copper last year. Chile is also a country with a surplus in trade, which makes it an attractive exemption.

Citi analyst Tom Mulqueen expects, for example, that Canada, Chile, and Mexico will "secure a rate of less than 25% as key partners" in the future.

The traders who tried to get ahead of the tariff now have some of the most costly copper in the entire world. It could be difficult to sell if the premium does not hold. (Reporting and editing by Veronica Brown, Barbara Lewis and Pratima Deai)

(source: Reuters)