On July 8, the tariff saga continued with President Trump announcing the intention to raise tariffs on copper to 50%, effective August 1, 2025. Details remain lacking at the time of writing, but it comes at a time when the administration is looking to promote investment in domestic manufacturing and industry. The tariffs would potentially add higher costs that will likely be absorbed by the copper consumer and could potentially dissuade or defer investment, challenging future demand growth. What we do know is that new uncertainties have now been introduced. It’s still unclear precisely what tariffs will cover (copper concentrate, cathode, products, scrap or all of the above?), what the tariff implementation timeline or duration will be, whether there will be country exemptions and concessions or whether there is potential for domestic demand destruction or substitution by other metals such as aluminum.
Let’s evaluate the current state of play within the copper market. As context, copper is an essential element in industry and is historically considered a barometer of economic growth. In recent times, the importance of copper has increased with the structural driver being the ongoing global commitment to energy transition and electrification. The commodity itself faces supply challenges and exhibits a tight supply-demand balance for the foreseeable future.
Trump’s announcement comes while sectoral tariff considerations are already underway, and only months after the initial order of an investigation under Section 232 of the Trade Expansion Act. The initial tariff rate was stated to be 25% and the implementation deadline was set for November 2025. The acceleration of tariff implementation and doubling of the initial tariff rate caught the market and participants by surprise; domestic prices on the Commodity Exchange (COMEX) have already reflected partial adoption of the tariff rate as a premium to London Metal Exchange (LME) prices.
Prior to the announcement, producers had already increased shipments to the US ahead of the Section 232 investigation outcome to take advantage of the anticipated higher prices, altering trade flows from the LME to COMEX. Consequently, domestic inventory was built up while inventories abroad were drawn down, tightening that market. We contend that if the 50% tariff rate is indeed ratified then, over time, the COMEX price of copper should trade closer to a 50% premium over LME prices. However, domestic destocking is expected throughout the remainder of 2025, and as a result, US copper imports should materially reduce. Ultimately, consumers would pay the price. Additionally, the LME would be restocked and pressure LME prices lower, Asia would be the recipient of increased physical flows and attention would turn to Chinese economic growth and demand. China’s consumption has grown as the country seeks to expand infrastructure to support its electrification goals while maintaining an intent to establish a strategic copper reserve.
Countries remain committed to supply chain diversification, establishing critical raw material policies, expanding recycling capacity and streamlining the permitting process to encourage project development. The tariffs on copper may incentivize industrial competitors to negotiate directly with mine owners or host countries for long-term supply contracts that provide surety of supply and stability. This potential action could serve as a deterrent for long-term implementation of tariffs and provide a means to negotiate exemptions or concessions. Time will tell.
The global copper supply is already facing disappointments in the form of aging mines, higher decline rates, lower ore grades, tighter environmental regulations and increasing geopolitical risks, all of which challenge future supply. While aluminum is considered a substitute in some applications, the metal is also subject to US tariffs, which further complicates its feasibility as an alternative.
Turning to the US, total copper consumption in 2024 was approximately 1,600 thousand metric tons, representing 6.5% of the global market, while domestic refined copper output was approximately 890,000 metric tons, or 3.3% of global refined copper production, according to the US Geological Survey. Consequently, the US imports 45% of total domestic copper demand with supplies from Chile accounting for 65% of imports, Canada accounting for 17%, Mexico for 9% and Peru for 6%.
Longer term, the US would need to increase domestic primary production, scrap recycling as well as smelting and refining capacity to rebalance. In our view, this would require policy stability, a form of deregulation to develop more robust supply chains and a period of prolonged higher prices. Such conditions would encourage investment in capital-intensive projects with long lead times. Notwithstanding, time is required and project acceleration appears unlikely. While smaller expansions are possible, they would be insufficient to close the anticipated gap. Scrap could be considered a more timely alternative, as the US exports approximately 600,000 metric tons of copper scrap each year. However, the US is currently not configured to process scrap and lacks capacity. Again, time would be required to execute this approach, although it may prove more advantageous than primary development in the interim.
We continue to advocate our overweight position in copper and copper-related corporate issuers relative to other metals & mining companies. The segment has continued to generate strong free cash flow, maintain liquidity strength and preserve conservative balance sheets which better prepares it for an investment cycle. We cannot rule out continued consolidation within the industry as long-term fundamentals remain intact and companies look to bolster future growth opportunities.