The copper price has fallen since its recent highs of three months. The London Metal Exchange’s (LME) Spread, which is now back in contango due to the price drop, reflects this.
The contango market is a sign that future prices of commodities are higher than the current spot prices, indicating that traders anticipate that commodity price will rise in time.
The benchmark cash-to-3-month spread, which had moved to backwardation on Friday for the first since June 2023, has eased into contango now.
Last week, a sudden move was made in the copper spread due to short-covering by the LME before contract expiration amid the expectation of US copper tariffs.
The three-month contract for copper on the LME closed at $9.390 per tonne, down by 0.1% over the previous closing price.
Copper tariffs likely
Following his announcement of tariffs last week on steel and aluminum, US President Donald Trump indicated that the copper could be the next target.
He hasn’t given a specific timetable for the implementation, but he did say that the copper tariffs would take more time to implement than the aluminum or steel tariffs.
Copper exporters, and those industries who rely on the raw material copper for their products are concerned that this move could result in higher prices or disruptions to the copper market.
A temporary tightening of the US copper markets is expected due to the looming threat that tariffs will be imposed.
This expectation has led traders to take a proactive approach, actively moving copper out of global LME storage facilities and into the US.
Arbitrage opportunities
The desire to take advantage of arbitrage opportunities created by price differences between two markets is driving this movement.
EwaManthey, commodity analyst at ING Group said that the arbitrage between CME and LME contracts had widened. The CME premium is now over $1200/t – more than 10% the LME’s price.
The spread dropped from the record high to over $900 Monday.
According to ING Group, prices in the US have risen by more than 20 percent this year and are at their highest levels since 2024. Meanwhile, the LME benchmark price has risen around 10 percent year-to date.
Manthey says:
If tariffs are applied, there is an additional upside for the copper price in New York. However, if potential tariffs do not meet expectations, then spreads could be retracted.
Copper imports are a major source of revenue for the US
US imports copper in large quantities to satisfy its domestic needs. According to data from the US Geological Survey, approximately 45% (or 450 tons) of copper consumed in the US comes from foreign countries.
The US economy is dependent on global supply chains and trade.
Chile is the biggest copper supplier to the US. It accounts for 35% of the total copper imported by the US.
Chile is therefore a vital partner in the US’s efforts to ensure a constant supply of copper. Canada is the US’s second largest copper supplier, after Chile. It contributes approximately 26 percent of total US imports.
This reliance on imported copper for a large portion of the US’s consumption highlights possible vulnerabilities, including disruptions to global supply chains caused by geopolitical issues, trade conflicts, or natural catastrophes.
ING Group stated that tariffs could be detrimental to copper and industrial metals, as they would slow global growth while keeping inflation high for longer.
The demand for industrial metals, such as copper, is expected to decline.
The post Copper Market Returns to Contango as Tariff Threat Arises could be updated as new information becomes available
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