Trump's Tariffs: Unintended Consequences for UK Copper Market

The Trump administration's plan to impose a 50pc tariff on copper imports has sent shockwaves through the global market, causing copper miners to reevaluate their shipments to the US. However, a surprise beneficiary of Trump's levy is Ed Miliband, the UK's Energy Secretary, as a potential influx of copper onto the London Metals Exchange (LME) could drive down prices, benefiting the UK's renewables industry. According to Morgan Stanley commodities strategist Amy Gower, the market has not yet fully reacted to the tariffs, but the LME price may need to come down as time passes.

Key Takeaways:

• The proposed 50pc tariff on copper imports could funnel a torrent of copper onto the LME, driving down prices in the process.
• The UK's renewables industry, led by Energy Secretary Ed Miliband, could benefit from lower copper prices, as copper is a crucial material in wind turbines, electric cars, and solar panels.
• Copper prices traded on the LME could fall by 6pc by the end of the year, potentially sliding by up to 11pc by 2026, according to Capital Economics.
• The current copper stockpiles in the US are estimated at 881,000 tonnes, which is almost double what American buyers actually need, leaving the rest waiting for the tariff to kick in.
• Copper held in Comex-registered warehouses more than doubled in the second quarter, and now exceeds the stock held in the LME and SHFE combined.
• The dash to send copper to the US has been largely driven by Chinese and Russian exports, leaving little for other countries; the proposed tariff could change this dynamic.
• Sellers will try to unload their US inventory rather than looking for new stock once the tariff takes effect, improving the availability of copper outside the US and weighing on LME copper prices.
• The nearest copper price, as observed on Comex, initiated the redistribution of backup and inventory management worldwide.
• The International Energy Agency expects global copper demand to be almost one third higher than supply by 2035, prompting mining companies to rush to buy promising tenements and open new mines.

Statistics:

• The US buys approximately 1.7m tonnes of copper annually, with only half of that being domestically produced.
• The country imports more than 800,000 tonnes of copper each year.
• Copper produced globally in 2020 was 2067 million tonnes.
• The International Energy Agency predicts that global copper demand will be almost one third higher than supply by 2035.
• Capital Economics estimates that the LME copper price could fall by 6pc by the end of the year and up to 11pc by 2026.

Sources:

• Morgan Stanley commodities strategist Amy Gower
• Capital Economics
• Macquarie
• Fox
• Ewa Manthey, commodities strategist at ING
• International Energy Agency
• Comex
• London Metals Exchange (LME)
• World Bureau of Metal Statistics