The collective scramble to move as much physical copper as possible to the U.S. before the imposition of import tariffs is creating shortages in the rest of the world.
London Metal Exchange (LME) stocks have fallen to nearly two-year lows with time-spreads flaring into backwardation as inventory drains away.
This tariff trade will continue until U.S. President Donald Trump's administration makes up its mind whether to add copper to the lengthening list of metals subject to penal import duties.
The Section 232 investigation launched by the administration in February comes with a 270-day deadline. Administration officials have dropped heavy hints it would be completed in accelerated "Trump time" but the market is still waiting.
The CME customs-cleared U.S. copper contract continues to command a hefty premium LMECMXCUc3 over the London market. The arbitrage has been a volatile trade but at a current $1,000-per metric ton basis three-month delivery, traders appear to be pricing in a potential 10% tariff.
More importantly, the transatlantic price gap more than covers the costs of shipping, suggesting no immediate let-up in the physical copper tariff trade.
DESPERATELY SEEKING CHILEAN COPPER
U.S. imports of refined copper jumped to more than 200,000 tons in April, the highest monthly arrival rate this decade.
Imports totalled 455,000 tons in the first four months of the year, more than double the tonnage imported over the same period of 2024.
Chilean brands dominate the current import mix, accounting for 61% and 75% of total inbound shipments in March and April respectively.
This data is not surprising. The CME's list of good-delivery brands is relatively restricted but includes 19 from Chilean producers.
LME warehouse stocks of Chilean-brand copper have been virtually cleared out, falling to just 75 tons at the end of May from 25,150 tons at the close of 2024.
It's also noticeable that while Chinese imports of refined metal were flat on a year-over-year basis in the January-April period, those of Chilean metal fell 44%.
While Chile is evidently the preferred origin, the gravitational pull of the U.S. tariff threat is also attracting metal from a multitude of countries that rarely ship to the U.S. such as Australia, Belgium, Germany, Spain and South Korea.
If China's trade figures are to be believed, even that country has shipped close to 50,000 tons to the U.S. market. This figure, though, more likely denotes metal being stripped from bonded warehouses and re-exported. Such "turnaround" metal is confusingly counted as an export by the country's customs department.
LME STOCKS DRAINED
Some of these U.S. arrivals are heading straight to CME-operated warehouses. CME inventory is rising every day and has already more than doubled this year to a current 175,954 tons.
LME warehouses, by contrast, are being steadily emptied. More than half the headline stocks of 114,475 tons have been cancelled in preparation for physical load-out.
The remaining 50,850 tons of live stocks are now at levels last seen in July 2023.
What remains is largely Russian and Chinese brand copper, although even this is on the move to fill gaps in the supply chain left by metal heading to the U.S.
LME off-warrant stocks have also been sliding, and at 30,188 tons they are now down by 20,300 tons since the start of the year
Unsurprisingly, LME time-spreads have been tightening. The benchmark cash-to-three-month period CMCU0-3 is currently trading in a backwardation of close to $90 per ton, which is the widest it's been since August 2023.
Even the Shanghai Futures Exchange forward curve is in backwardation, with registered exchange inventory of 101,943 tons a long way off the Lunar New Year peak of 268,337 tons.
GAME STILL ON
This redistribution of global inventory is ongoing and the imbalances will become ever starker until the market gets closure on the tariff threat.
When that comes is anyone's guess. But the Trump administration may want to move sooner rather than later.
The U.S. will have accumulated so much copper during the Section 232 investigation process that it won't need to import much metal for months to come, reducing any U.S. Treasury take from tariffs.
The rest of the world will be hoping for a speedy decision too since the flow of metal to the U.S. is creating shortfall everywhere else.
And what's been customs-cleared into the U.S. will need a massive financial incentive to leave again.
(Reuters: Andy Home is a Reuters columnist. The opinions expressed are his own. Editing by Paul Simao)