Three US Copper Tariff Scenarios: Early Announcement Most Bullish

Overview

This report focuses on the impending US decision on refined copper import tariffs, analyzing its potential impact on global copper supply-demand balance, COMEX-LME spreads, and copper prices by constructing three policy scenarios (early announcement, complete cancellation, delayed decision). The report points out that the market has already partially priced in tariff expectations through COMEX premiums and excess imports, with US copper inventories at high levels; subsequent policy paths will be the most critical risk event for the copper market in 2H26.

Core views

Tariff Decision Timing and Baseline: The US Department of Commerce is expected to submit an update report on the domestic copper market to the President by June 30 or July 1, meaning the tariff decision will likely be made in 2H26 but is unlikely to be announced immediately at the end of June/early July. The core issue is whether to impose a 15% import tariff on refined copper starting January 1, 2027 (potentially rising to 30% in 2028). Currently, aluminum, steel, and most copper semi-finished products are subject to a 50% tariff. Scenario 1 (Most Bullish): Early Announcement of Tariffs. If announced in July and implemented in January of the following year, this would give the market ample window for 'front-running' stockpiling. This would accelerate copper inflows to the US, tighten supply in non-US markets, push the LME term structure into backwardation, and cause the COMEX copper premium over LME to trend towards 15%. In this scenario, both COMEX and LME copper prices are expected to rise. Scenario 2 (Most Bearish): Complete Cancellation of Tariffs. If the US explicitly excludes refined copper from tariffs, the current excess imports driven by tariff expectations (accounting for about 2.6% of global demand) will cease. COMEX copper prices will fall back to parity with or slightly below LME, and the LME forward curve will widen due to supply release, putting downward pressure on the absolute values of both benchmark copper prices. However, the report believes that even if COMEX trades at a discount, the US is unlikely to export copper, with more transfers occurring between warehouses; considering structural supply shortages and expected deficits in the industry, copper prices still find support around $12,000/ton. Scenario 3 (Neutral/Status Quo Continuation): Delayed Decision. If the decision is delayed citing 'insufficient evidence', although retaining the possibility of future taxation, it may be interpreted by the market as a signal of declining tariff probability, mildly bearish for copper prices. Current Market Status and Positions: Driven by tariff expectations, COMEX copper prices currently carry a premium of about 6% over LME, stimulating excess imports of approximately 260,000 tons year-to-date (annualized accounting for 2.6% of global demand), with US refined copper inventories exceeding one year's normal import volume. In the futures market, COMEX net long positions are at historical highs, indicating strong speculative sentiment. Additionally, changes in Federal Reserve rate hike expectations also disturb copper prices; COMEX tends to outperform when risk appetite rises and underperform otherwise.

Analysis framework

The report uses 'scenario analysis' as the core framework, transforming complex policy uncertainty into three deducible discrete outcomes, and analyzing their impact mechanisms on trade flows, inventory, cross-market spreads, and absolute prices. In the deduction process, the institution combines 'cross-market arbitrage pricing' logic: Since COMEX is the US delivery benchmark, its price theoretically should include tariff costs, so monitoring changes in the COMEX-LME spread quantifies the market's real-time pricing of tariff probabilities (e.g., the current 6% premium corresponds to a 43% probability of a 15% tariff). Simultaneously, the analysis introduces a 'physical supply-demand verification' step, tracking actual sea freight import data and inventory accumulation rates not just via futures signals, to confirm the scale of excess imports and their proportion in global demand, thereby assessing the magnitude of impact on the physical market if expectations reverse (e.g., tariff cancellation). This dual verification of 'financial pricing + physical flow' enhances the robustness of the conclusions.

Methodology notes

• Event Gaming and Behavioral FinanceEvent-driven analysis

  Constructing a multi-scenario matrix around specific policy events (tariff decisions) to predict asset price response functions under different outcomes

  When major policies have high uncertainty, directly predicting the outcome often yields very low accuracy. A more effective method is to list all possible scenarios (e.g., tax, no tax, delay), calculate supply-demand changes and price elasticity for each scenario separately, helping investors build conditional reflex strategies like 'if A happens then B', rather than betting on a single outcome.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Inferring implied tariff probabilities from COMEX-LME spreads and verifying whether expectations are overextended using actual import volumes

  Cross-market spreads are the market's 'voting machine' for policy expectations. For example, a 6% COMEX premium implies the market believes there is about a 43% probability of a 15% tariff. But looking at spreads alone is insufficient; physical import data must also be checked: if excess imports far exceed reasonable stockpiling needs, it suggests expectations may be overheated, amplifying the risk of price correction if the policy fails to materialize.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Treating policy-driven stockpiling demand as temporary incremental demand, assessing its share of global consumption and sustainability

  Stockpiling triggered by tariffs is not real terminal consumption but 'shadow demand' driven by policy expectations. In this report, this part of demand accounts for about 2.6% of global consumption, representing a significant marginal variable. When analyzing such demand, the key is to distinguish it from structural demand—once the policy becomes clear (whether taxed or not), this demand will quickly drop to zero or solidify, leading to drastic revaluation of the supply-demand table.

Key data

• Current COMEX-LME Premium~6%Reflects that the market has partially priced in tariff expectations, incentivizing copper flows to the US
• Year-to-Date US Excess Imports260,000 tonsAnnualized accounting for about 2.6% of global copper demand, belonging to policy-driven stockpiling demand
• Market Pricing Probability of 15% Tariff in Jan 202743%Derived from forward curve spreads; probability of imposition before Dec 2027 reaches 73%
• US Refined Copper Inventory Coverage Duration>1 year of normal importsIndicates stockpiling is quite sufficient, with limited room for further increments
• Proposed Tariff Rates15% (from 2027), 30% (from 2028)Targeting refined copper; aluminum, steel, and copper semi-finished products already subject to 50% tariffs
• Copper Price Support Level (under Tariff Cancellation Scenario)~$12,000/tonBased on judgments of structural supply shortages and expected deficits in the industry

Impact & implications

For US copper consumers, if tariffs are implemented, COMEX copper prices will remain 15%-30% higher than international benchmarks for the long term, increasing local manufacturing costs; if cancelled, they gain short-term price benefits but need to be wary of procurement rhythm adjustments due to inventory destocking. For global copper miners and traders, the oscillation of tariff policies exacerbates the coexistence of opportunities and risks in cross-market arbitrage, requiring close monitoring of US import velocity changes as a leading indicator. For investors, with COMEX net long positions at historical extremes and叠加 macro interest rate expectation fluctuations, two-way copper price volatility is expected to remain high; simply betting on direction offers lower cost-performance ratio compared to constructing option portfolios or focusing on spread trading strategies. The report emphasizes that regardless of which scenario lands, the marginal variable of 'US stockpiling demand' that previously supported copper prices will undergo a qualitative change, becoming the core anchor for copper market repricing in the second half of the year.

Risks

• Tariff decision timing or results deviating from the three preset scenarios (e.g., rate adjustments, exemption clauses, etc.)
• COMEX net long positions at historical highs, where reversal of policy expectations may trigger violent unwinding
• Warming Federal Reserve rate hike expectations suppressing risk assets, with copper prices performing weakly in Risk-off environments
• US copper inventories already at high levels, meaning even if tariffs are announced, further stockpiling space and price elasticity may be limited
• Macroeconomic recession risks weakening real terminal copper demand, offsetting policy-driven benefits

What to watch

• Content and release timing of the copper market update report submitted by the US Department of Commerce to the President
• Official statements or fact sheets from the White House regarding Section 232 tariff plans
• Changes in COMEX-LME spreads and weekly US refined copper import data
• COMEX copper futures positioning reports (especially changes in net long positions)
• Impact of Federal Reserve officials' speeches and macro data like Non-Farm Payrolls on rate hike expectations