Copper market reacts to tariff proposals: mixed movements in New York and London

While short-term price movements may be volatile, the long-term implications of Trump’s tariff policies on copper and other metals will depend on how global players like China and the U.S. manufacturing sector respond in the months ahead.

The copper market witnessed contrasting movements as futures rallied in New York but slumped in London following President Donald Trump’s announcement of proposed import tariffs. These tariffs, aimed at boosting domestic manufacturing, could raise costs for U.S. manufacturers while potentially dampening global demand.

In a recent speech in Miami, Trump reiterated his commitment to imposing levies on copper, aluminum, and steel, alongside products like computer chips and pharmaceuticals. “We have to bring production back to our country,” he declared, emphasizing the importance of securing supply chains for critical materials like metals needed for military purposes.

The Financial Times reported that Treasury Secretary Scott Bessent has proposed starting tariffs at 2.5%, with gradual increases over time. However, Trump signaled his intention to implement even more substantial measures, stating his preference for "much bigger" across-the-board tariffs.

Market Implications and Price Divergence

Even before Trump’s inauguration, concerns over potential tariffs have unsettled the metals market. Some traders have accelerated shipments to the U.S. in anticipation of higher costs. Copper futures in New York, which already rose significantly following Trump’s election, climbed on Tuesday despite a drop in contracts on the London Metal Exchange (LME).

This divergence in prices between the two exchanges could persist in the near term, according to Natalie Scott-Gray, senior metals analyst at StoneX Group Inc. “Despite much of the price action having been already priced-in, the spread is vulnerable to the upside,” she explained.

The Long-Term Picture: Mixed Signals

The long-term effects of U.S. tariffs on copper remain uncertain. On one hand, tariffs could hinder global growth, a negative factor for industrial metals. “Tariffs are bad for the metal, in terms of slowing global growth and keeping inflation higher for longer in the U.S.,” said Alice Fox, associate director of commodities strategy at Macquarie Bank Ltd.

However, Fox also highlighted China’s potential response as a critical factor. “One possibility is that the tariffs are offset, and demand in China is not impacted overall, as the loss of exports is met with measures to boost domestic consumption,” she noted. This balancing act could determine how much tariffs will ultimately weigh on copper prices globally.

Broader Market Reactions

The tariff uncertainty weighed on aluminum and other industrial metals as well. On the LME, aluminum prices fell 0.8%, and zinc dropped 1.9%, while copper slid 0.9% to $9,014.00 per ton as of 2:50 p.m. in London. Conversely, copper on New York’s Comex gained 0.6%, continuing its upward trend since Monday’s market close.

A stronger U.S. dollar further pressured commodity prices, reducing purchasing power for major importers like China. Meanwhile, concerns about slowing factory activity in China—where manufacturing contracted in January after three months of growth—have added to the bearish outlook for metals. The ongoing struggles of China’s property sector also cloud prospects for demand recovery in the world’s largest metals consumer.

Canada in the Crosshairs

Among U.S. trade partners, Canada is expected to face the most significant impact from the proposed tariffs. The country accounted for more than half of U.S. aluminum imports by value in 2023, as well as being a top supplier of copper and steel. Morgan Stanley noted that Canada was the second-largest copper exporter to the U.S., trailing only Chile, and the leading foreign steel supplier.

What Lies Ahead?

Industrial metals markets remain under pressure as the potential for a prolonged trade conflict looms. The combination of tariff concerns, slower global growth, and a strong U.S. dollar has left investors cautious. While short-term price movements may be volatile, the long-term implications of Trump’s tariff policies on copper and other metals will depend on how global players like China and the U.S. manufacturing sector respond in the months ahead.