Theme of the Day: Refined copper exempt from US tariffs

President Donald Trump surprised markets by exempting refined copper (inc. ores, concentrates and cathodes) from steep new tariffs on the metal which come into effect on 1 Aug, at least until Jan 2027, when a tariff may be phased in if warranted. The White House said it would impose 50% levies on semi-finished products, such as copper pipes and wires, and so-called derivate products, such as pipe fittings and cables. However, the US excluded “input” materials, such as copper ores and concentrates, instead subjecting them to new rules governing where they could be sold. The levies are part of a push by the Trump administration to make the US more self-sufficient and break its dependence on China for critical minerals.The US imports about half of its refined copper and does not have the domestic refining capacity to meet its own needs. The country only has two copper smelters, owned by Freeport-McMoRan and Rio Tinto. It has historically been an exporter of copper scrap and concentrates — which are mostly sent to China for processing because the US lacks the smelting capacity. Trump said he would require a quarter of the high-quality copper scrap produced in the US to be sold domestically. While keeping scrap in the US could boost the domestic smelting industry, it takes years for new facilities to come online. Under the order, a quarter of copper input materials, including ores, concentrates, mattes, cathodes, and anodes, would also need to be sold in the US from 2027, rising to 30% in 2028 and 40% in 2029. This is intended to boost US refining capacity by ensuring low-cost inputs while domestic refiners grow their operations, according to the White House.The order authorised the use of the Defense Production Act which allows him to direct industries to boost production of materials critical to national security, to boost US copper manufacturing and supply and ordered the commerce department to issue export licensing rules for high-quality copper scrap. Under the terms of the DPA, the US government can compel private companies to prioritise government contracts over private ones and allows the government to provide loans and grants to boost manufacturing. The law has been triggered by previous presidents to help boost domestic US production of critical minerals.An exemption from tariffs of copper cathode would trigger a sizeable correction in the gap that has grown in recent months between the London and US copper prices. Huge volumes of copper cathode were shipped to the US ahead of the introduction of the levies as buyers sought to import the material before tariffs hit — with the US copper price climbing to a series of record premiums over the London price of 30%. Expect LME spreads to ease on expectations of increased supply from US exports. LME flat price initially bid on ARB unwinds, then got sold off.Bottom line: US has secured supply via long-term contracts with Indonesia, Chile and DRC, meaning cathode tariffs are not required to incentivise the domestic supply required for self-sufficiency, but they do want to achieve domestic self-sufficiency at a semis level, thus the (semis) tariff.