U.S. copper spread becomes tariff risk gauge for refined metal market

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U.S. copper spread as tariff gauge

Highlights

Societe Generale estimates the current COMEX-LME copper spread implies a 14.6% chance of a 15% U.S. tariff in January 2027 and a 37% chance of a 30% duty in January 2028.
U.S. imports of refined copper surpassed 200,000 metric tons in July, marking the highest level in 12 years, driven by a growing tariff premium and supply constraints.
Copper futures hit a record high of nearly $6.90 per pound last week as Section 232 tariff expectations and tight supply support prices and elevate market volatility.

Tariff expectations reshape copper arbitrage

As reported by CNBC, the spread between COMEX and London Metal Exchange copper prices is no longer serving mainly as a traditional arbitrage trade tied to Chinese demand swings or South American supply disruptions. Analysts now say it is increasingly reflecting market expectations for possible Section 232 tariffs on refined copper after a White House investigation and a Commerce Department recommendation for phased duties.

Societe Generale estimates the current premium implies a 14.6% chance of a 15% tariff taking effect in January 2027 and a 37% chance of a 30% duty in January 2028. The bank models the gap by comparing COMEX futures with the full delivered cost of moving LME-grade copper from European warehouses to the U.S. East Coast.

The U.S. already imposes a 50% levy on imports of semi-finished copper products and certain other copper-made products. SocGen analysts led by Mike Haigh say policymakers are becoming more concerned about reliance on imported refined copper as demand from AI infrastructure, grid modernization and defense spending accelerates.

Higher inflows and tighter supply support prices

The growing tariff premium is helping draw more metal into the U.S., with imports topping 200,000 metric tons in July, the highest level in 12 years. ING strategist Ewa Manthey says the wider COMEX-LME spread is signaling higher perceived tariff risk while continuing to pull copper into the U.S. market.

Copper, widely seen as a barometer for the broader economy because of its use in construction, electronics and transportation, has rallied for more than a year, with futures reaching a record high of almost $6.90 per pound last week. Natalie Scott-Gray of StoneX says the pending U.S. Section 232 decision on refined copper is now the single biggest catalyst for the market, with broad tariffs likely to tighten supply outside the U.S., while no tariffs would unwind the COMEX-LME arbitrage.

Manthey says the wider premium remains supportive for copper prices in the near term as mine supply stays tight and competition between the U.S. and China for available metal intensifies. She adds that the outlook for copper remains constructive, although tariff uncertainty is likely to keep volatility elevated.

In our earlier coverage of the White House’s report on Chinese transshipment, we explained how U.S. officials allege China has routed exports through more than 40 third countries to evade tariffs on roughly $60 billion in trade. We also noted the administration’s enforcement push, including Customs and Border Protection’s rollout of the AI-based “Detective Border” system to tighten checks on origin and labeling and potentially boost tariff collections.

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