TradingKey - Copper prices on the London Metal Exchange (LME) hit an all-time high after weeks of gains. As the market bets that U.S. President Donald Trump might expand copper tariffs to include refined copper imports, traders have accelerated shipments of copper to the U.S., further tightening short-term supply in other regions.

The core contradiction in the recent copper rally is that while total global copper inventories are not exceptionally low, stocks are becoming increasingly concentrated in the U.S., and copper in the LME warehouse network continues to decline. The deadline for the U.S. tariff review has passed without the White House announcing a final plan, and this policy vacuum has instead maintained the arbitrage window between New York and London.

This means the immediate driver of the current rally is not a sudden surge in global demand, but rather tariff expectations causing a reallocation of copper, leading to localized shortages and driving up near-term supply premiums.

As of press time, copper stocks led gains, with Freeport-McMoRan (FCX) up 7.52%, Hudbay Minerals (HBM) up 7.34%, Southern Copper (SCCO) up 6.80%, and Teck Resources Limited (TECK) up 4.57%.

Tariff Gaps Keep Arbitrage Window Open

The U.S. Department of Commerce had previously recommended imposing a 15% tariff on refined copper starting in 2027 and raising it to 30% in 2028. However, the Trump administration exempted refined copper last year, levying a 50% tariff only on semi-finished products such as copper pipes and wires, as well as electrical components, while requiring the Department of Commerce to conduct a review by the end of June this year. With the review deadline now past and the White House yet to make an announcement, traders continue rushing copper into the U.S.

Tariff expectations have pushed New York copper prices above the London benchmark since the first half of last year. Commodity traders including Mercuria and Trafigura raced to ship copper to U.S. ports, as the premium of New York over London created opportunities for cross-market arbitrage. Even if no additional tariffs are ultimately imposed, the inventories that have flowed into the U.S. may remain for the long term; if the policy is implemented, a final wave of shipments could occur before the levy takes effect.

This siphon effect is already reflected in inventory structures. Official U.S. Comex inventories have surged eightfold since the beginning of last year to over 750,000 short tons; including off-exchange inventories, copper stockpiled in the U.S. is widely estimated to exceed 1 million metric tons. As large volumes of the metal are unlikely to return to the global market in the short term, available supply outside the U.S. continues to tighten.

LME Cash Premium Hits Highest Since 2021

LME warehouses have borne the brunt of inventory outflows. LME copper inventories plummeted 32% from a month earlier to 205,000 tonnes, with the cash-to-three-month premium briefly surging past $500 per tonne in mid-August, reaching its highest level since the 2021 market squeeze. Traders temporarily relieved the tightness through large-scale deliveries, but large withdrawal requests pushed available inventories back down to low levels.

High prices in the U.S. market have also prompted traders to procure copper from the Democratic Republic of the Congo (DRC). U.S. imports of copper cathodes from the DRC reached a record 53,290 tonnes in July, accounting for 23.9% of total U.S. copper imports that month; total U.S. copper imports for the month exceeded 220,000 tonnes for the first time, reflecting traders rushing to import copper before potential tariffs take effect.

DRC copper cannot currently be delivered on COMEX, but it can enter the U.S. spot market. As COMEX copper prices were $400 to $600 per tonne higher than LME prices at times, purchasing non-COMEX-registered DRC copper could be more cost-effective for U.S. end-users. This type of copper is typically benchmarked against LME prices and sold at a discount of $550 to $800 per tonne below the LME to cover transportation costs.

Mine Supply Constrained, Copper Demand Still Has Long-Term Support

The foundation for the long-term rise in copper prices remains the supply-demand structure. Major global copper mines are facing mine aging, declining ore grades, and operational disruptions, while supply in key copper-producing regions such as Chile and Indonesia remains subject to uncertainty. If mine production fails to recover in the second half of the year, global mined copper output could record its first annual decline since 2017.

On the demand side, growth continues to be driven by data centers, renewable energy, electric vehicles, and power grid construction. China, the world's largest copper consumer, has increased direct imports of refined copper due to shortages of copper concentrate and scrap copper, while the traditional peak season for manufacturing may also boost a recovery in demand. Meanwhile, it takes more than 15 years on average from discovery to commissioning for a mine, making it difficult for new projects to quickly bridge the gap.

Copper prices have hit successive record highs, but the true driver of this rally has shifted from a macro demand narrative to inventory imbalances and policy uncertainty. As long as the refined copper tariff review remains unresolved, the regional imbalance in global copper inventories will be difficult to reverse; coupled with the energy transition, AI data center construction, and mine supply constraints, the structural strength in copper prices is likely to persist.

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