Copper Trade Shifts to Policy-Driven as Tariffs Reshape COMEX-LME Spread

Societe Generale analysts Michael Haigh and Jeremy Sellem argue that copper has shifted into a policy-driven trade due to Section 232 tariffs, which have reshaped the COMEX-LME arbitrage. The US has built an increasingly aggressive regime around copper, imposing a 50% duty on semi-finished and derivative copper products while deferring any tariff on refined cathode itself.

The analysts examine how the arbitrage functions and how it has been distorted by the tariff overlay. They note that both COMEX and LME contracts are physically deliverable, with metal flows from the cheaper venue to the more expensive one. Historically, the LME's inventory levels have sat about 65% higher than COMEX due to its larger warehouse network.

The analysts treat the spread as a mean-reverting series, modestly biased toward a COMEX premium of about $33/mt over 28 years. They estimate that the market is pricing about a 14.6% chance of a 15% tariff by January 2027 and a 37% chance of a 30% tariff by January 2028.

The analysts use this framework to back out the market-implied probability of future copper tariffs, stripping out the historical non-tariff basis and treating the residual as the expected tariff contribution. They conclude that copper has become a policy trade due to the tariff overlay.