Copper Price Spread Becomes Tariff Risk Indicator as Trump Administration Considers New Section 232 Investigation
Copper prices have been surging for over a year, with futures hitting a record high of around $6.90 per pound last week. Historically, arbitrage trades between US Comex copper futures and London Metal Exchange (LME) prices were driven by factors such as demand shocks in China or supply disruptions in South America.
However, the prospect of new Section 232 tariffs on refined copper has significantly altered the arbitrage trade. The Trump administration is still considering the outcome of its investigation into the tariff, which has led investors to use the Comex copper premium as a gauge of the likelihood of additional tariffs.
According to Societe Generale analysts, the current Comex premium over LME copper implies a 14.6% probability that the recommended 15% blanket tariff will be introduced by January 2027. This probability rises to 37% for a 30% tariff by January 2028.
US policymakers are increasingly concerned about the country's dependence on refined copper imports, particularly with massive investment in AI infrastructure, power-grid upgrades, and defense spending accelerating global demand. The Section 232 investigation reflects a broader objective of 'securing access to a material viewed as critical to both economic growth and national security.'
Natalie Scott-Gray, senior metals demand strategist at StoneX, said the delayed US decision on the Section 232 investigation into refined copper has become the 'single biggest catalyst' facing the copper market.