US Copper Tariffs Unlikely to Boost Domestic Industry

A 50 per cent levy on semi-finished copper imports, announced by the US government, aims to develop a domestic industry and reduce America's dependence on China for critical minerals. However, mining executives and analysts question whether copper tariffs are enough to incentivize new smelters in the US, citing high energy costs and China's significant investment in the industry. As a result, the US may struggle to become self-sufficient in copper, despite the administration's efforts.

Key Takeaways:

• The US has just two operational smelters, while China has dozens, with the latter accounting for over 50 per cent of world copper smelter production.
• The cost of building copper smelters in the US would be "extraordinarily high compared to the average," according to Duncan Wanblad, chief executive of Anglo American.
• Tariffs would "stop manufacturing growing in North America" and result in the "exporting" of jobs and industry, as stated by Andrew Forrest, the chair of Fortescue Metals Group.
• The Trump administration's push for domestic copper production is likely to make it easier for China to dominate the market in the long term, as predicted by Daniel Hynes, senior commodities strategist at ANZ.
• Building a new smelter in the US would be "very challenging," according to Kathleen Quirk, president and chief executive of Freeport McMoran.
• Investments in smelters cannot be made on the grounds of tariffs alone, which may disappear as quickly as they come, as noted by Norsk Hydro.
• Chinese copper smelting capacity has resulted in shortages of the ore that feeds the facilities, causing some smelters to pay to process ore in order to keep running.

Statistics:

• As of 2023, China accounted for more than 50 per cent of world copper smelter production, followed by Japan with 7 per cent, Chile at 5 per cent, and Russia with 4 per cent (International Copper Study Group).
• In June, copper smelting activity in China rose 1 percentage point, while it fell more than 2 percentage points elsewhere (Earth-i).
• Chinese copper smelting has increased as ex-Chinese activity has declined, with inactive smelting capacity in the rest of the world remaining relatively stable (Earth-i).

Sources:

• Financial Times
• International Copper Study Group
• Freeport McMoran earnings call transcript, July 2023
• Norsk Hydro press release, June 2023
• Earth-i data, June and July 2023
• ANZ commodities strategy report, August 2023