Summary of Key Points
Recently, the United States has seen another wave of "copper rush" due to changes in U.S. tariff policies. The price of copper on COMEX in New York is currently $400-$500 per ton higher than that on LME in London. Traders are taking advantage of this arbitrage opportunity by shipping copper from LME to the United States for sale, leading to a record daily withdrawal volume from LME (over 50,000 tons) since 2013. LME has implemented the "near-month lending rule" to prevent cornering risks. Experts believe that this situation will not repeat the dramatic price surge of 2021, but it will likely raise the average copper price level. Tariffs have a limited impact on Sino-U.S. copper trade and are not part of some strategic maneuvering. In the long term, copper prices are expected to rise due to tight supply (disruptions in mining operations and record-low processing fees) and strong demand (from new energy and AI sectors).
Detailed Analysis
#### 1. Why is the price of copper higher in the United States than in London? – Tariffs create arbitrage opportunities
Simply put, U.S. tariffs have caused a premium for local copper prices. Since last year, the U.S. has imposed tariffs of 50% or 25% on copper products, increasing the cost of imported copper and making it much more expensive than in the international market (London). Traders see this price difference as an opportunity to buy copper from LME at a lower price and sell it in the U.S. for a profit.
#### 2. How does LME prevent cornering? – Rules to restrict large traders' influence
"Cornering" is a common issue in futures markets, where a trader with a large number of near-month contracts and control over inventory can force others to close their positions at high prices. LME's solution is the "near-month lending rule," which requires holders of large amounts of near-month contracts to lend their copper to the market, thereby increasing liquidity and preventing extreme price movements.
#### 3. Will there be another price surge like in 2021? – Low probability, but prices will likely rise
The price of copper soared by over 40% in 2021 due to global supply-demand imbalance and historically low LME inventory. The current situation is different:
- Copper prices have already risen significantly last year, so there is less room for a major stimulus.
- The current price difference (a few hundred dollars) is much smaller than the thousands of dollars seen in 2021.
- U.S. inventory levels are at a record high (640,000 tons), indicating less copper scarcity compared to 2021.
However, arbitrage activities will likely raise the average copper price level.
#### 4. How do tariffs affect Sino-U.S. copper trade? – Limited impact on China; no strategic purpose
- For the U.S.: Traders are acting out of profit motives, not for national strategy. The amount of copper held by the U.S. is substantial and unlikely to be used up quickly.
- For China: Chinese copper does not meet COMEX delivery standards, so most of the imported copper comes from South America, with limited impact on China's imports. China's focus is on increasing its domestic production to reduce reliance on imports.
#### 5. What will happen to copper prices in the future? – Long-term upward trend due to tight supply and strong demand
- Supply: Mining disruptions (in Indonesia and the Congo) will affect production, with full capacity not expected until 2028.
- Processing fees: Record-low processing fees (-105 dollars per ton) indicate a shortage of copper ore, giving miners more bargaining power.
- Demand: New energy (electric vehicles, solar), AI (server components), and domestic infrastructure investments (4 trillion yuan in the electric grid) all require large amounts of copper.
- Macroeconomic factors: The Federal Reserve's interest rate cuts may boost asset prices, and improved relations between the U.S. and Iran could reduce geopolitical risks.
Investment banks are optimistic, with Citibank predicting copper prices to reach $15,000 per ton within 12 months and Goldman Sachs raising the average price for 2027 to $13,800 per ton. In the short term, domestic copper prices may remain stable between 103,000 and 107,500 yuan per ton, but the long-term trend is upward.
In summary
U.S. tariffs have sparked copper arbitrage, leading to higher prices in the short term. In the long run, copper prices are expected to rise due to supply-demand imbalances. The Sino-U.S. trade competition over copper is more about business opportunities than strategic maneuvering. For individuals, buying copper-related assets (such as copper ETFs) could be profitable, but it's important to be aware of short-term price fluctuations.