US copper tariffs exempt refined copper, causing price shifts: UBS

The US implemented a 50% tariff on semi-finished copper imports, triggering an over 20% decline in US COMEX copper prices while LME prices fell only 1%, significantly narrowing the market price differential. New mandates require increased domestic sales of US-produced copper inputs and scrap to bolster refining capacity, though UBS analysts anticipate minimal near-term impact. Despite mixed mining production guidance and contracting global manufacturing PMIs, UBS maintains a bullish long-term outlook for copper, forecasting prices above $10,500/metric ton by mid-2026 and projecting market deficits for 2025 and 2026 driven by refined copper demand growth.

Analysis

The US copper market has been significantly disrupted by a new 50% tariff on semi-finished imports, which caused US COMEX copper prices to plummet by over 20% while LME prices fell only 1%, effectively eliminating the prior 30% premium. This price convergence is further complicated by new mandates requiring a rising percentage of US-produced copper inputs and scrap to be sold domestically, starting in 2027, in a bid to strengthen US refining capacity. However, UBS analysts view the near-term impact of these mandates as minimal, given that approximately 40% of US scrap is already processed domestically. They project that substantial US inventories, built up in anticipation of the tariffs, could push US copper prices to trade at a discount to LME prices. This near-term price pressure is compounded by contracting global manufacturing activity, with PMIs in the US, Eurozone, and China all remaining below the 50-point threshold. On the supply side, 2025 production guidance is mixed, with Nornickel and Teck Resources lowering forecasts while Glencore maintained its outlook. Despite these headwinds, UBS presents a bullish long-term case, forecasting a market deficit of 53,000 metric tons in 2025 and 87,000 in 2026, and prices exceeding $10,500 per metric ton by mid-2026, driven by projected refined copper demand growth of 2.2% and 2.9% respectively.

Key Decisions for Investors

• Investors should distinguish between the short-term bearish pressure on US copper prices, stemming from tariffs and inventory overhang, and the longer-term bullish structural narrative based on projected supply deficits.
• Monitor the COMEX-LME price spread for potential arbitrage or hedging opportunities, as UBS analysis suggests US prices could flip to a discount due to ample domestic supply.
• Re-evaluate exposure to copper producers, noting that Glencore's maintained guidance signals relative stability compared to the downward revisions from competitors like Teck Resources.
• Treat contracting global manufacturing PMIs as a key risk indicator, as persistent industrial weakness could undermine the demand growth assumptions underpinning the bullish long-term price forecasts.