Pretiorates' Thoughts 74 – Make Copper Expensive Again: The Trump Tariff Effect
Published on March 29, 2025
In our analyses, we regularly examine current movements, identify possible influencing factors and assess the general market situation. However, these are not recommendations, but merely opinions and food for thought.
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What was the hottest topic on the financial markets this week? Trump's tariffs.
And next week? You guessed right - Trump's tariffs again in all likelihood!
The market is now pretty sure: Copper will also be affected by the import tariffs. And sooner than expected. A clever idea? Well, yes, it will make the brown metal more expensive, but that seems to be the lesser evil for the Trump government. Better expensive Copper than no Copper at all...
The real problem, however, lies deeper: the approval procedures for the US mining industry now resemble a jungle of regulations and requirements. It now takes an average of 29 years from discovery to production of a new mine. According to S&P Global, this is the second longest lead time in the world after the African country of Zambia. Without a secure Copper supply, Silicon Valley and Co. can bury their ambitious tech projects - be it for AI or data centers - right away. Even the green energy transition will remain a distant dream if the crucial metal is missing. Grand visions are pointless if the raw materials are missing.
We can already see how quickly markets adapt: Copper is rapidly moving from London to the USA. If Trump actually implements the threatened 25% import tariff - and this is very likely - Copper will soon be exactly 25% more expensive in the USA. The market has long since reacted to this: On the New York Metals Exchange, Copper is already trading over 15% higher than on the London LME...
We already experienced a massive price rally a year ago, at that time due to supply bottlenecks. But while investors (non-commercials) made a lot of money back then, their influence is largely absent this time. The current price increase is happening without their involvement - an unusual phenomenon.
Normally, price spikes occur when a product becomes scarce. Then the spot market prices exceed the longer-term futures - a situation known as “backwardation”. And historically, this has been the case every time Copper prices have risen. But this time? Not this time!
For years, China has been responsible for more than half of global Copper demand. Recently, however, the economy there has been rather weak and demand has been correspondingly lower. But since the beginning of the year there has been a turnaround: The number of open Copper contracts on the Shanghai Metal Exchange has suddenly risen massively.
This is particularly exciting because China's credit impulses - an indicator of future industrial activity - do not actually point to increased demand. Past experience shows that if the number of loans increases, industrial demand picks up in around 12 months. And where there is more industry, the price of Copper also rises.
Conclusion: The US mining industry is struggling with massive regulatory hurdles. In less than two months, the import tariffs imposed by US President Trump have already led to companies making commitments worth almost 2 trillion US dollars for new production sites in the USA. However, the mining industry needs less bureaucracy. If nothing changes, the USA will have to continue importing large quantities of Copper. If China then also gains economic momentum, the Copper market will become even more exciting!
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