US Copper Tariff Uncertainty Fuels Global Misallocation

The US copper tariff situation remains unresolved, and traders are watching closely for any developments. On September 29, there was no news on the policy by midday, but this doesn't necessarily mean it has been scrapped. The COMEX-LME price spread has narrowed, making it less profitable to ship new physical cargo to the US, effectively closing the arbitrage window.

The escalating tariff expectations of 15% in 2027 and 30% in 2028 may still encourage traders to ship copper to the US ahead of time. Over the past year, COMEX inventory rose from around 320,000 short tons to near 770,000 short tons, while China's social inventory fell to 78,300 mt.

This has led some analysts to worry about a resurgence of long-term US siphoning and further exacerbate the global misallocation of copper resources. The US government doesn't need to directly allocate funds to build a national reserve; it only needs to maintain the expectation of future tariffs, which traders will bear the costs for.

From a cross-market structure perspective, COMEX remains in contango, reflecting relatively ample near-term US inventories, while LME is in backwardation, indicating tight spot supply in non-US markets. The continued inventory buildup in the US and ongoing destocking in China and Asian markets are driving up domestic spot premiums.