A specialized arbitrage in metals products is evolving into a real-time measure of U.S. tariff risk.
Copper, seen as a barometer of the broader economy as the industrial metal is a key component of construction, electronics and transportation, has been in decline for more than a year, with futures hitting a record high of about $6.90 a pound last week.
The spread between U.S. COMEX futures and London Metal Exchange prices has historically been used by spot traders, banks, hedge funds, producers, and consumers to profit from temporary price differences and hedge price risk between the two markets.
Arbitrage has historically been driven by factors such as demand shocks in China and supply disruptions in South America.
But now Société Générale analysts say the prospect of new Section 232 tariffs on refined copper pending a White House investigation has changed the trade, with investors increasingly using the COMEX premium as a proxy for additional tariffs.
The United States already imposes a 50% tariff on imports of semifinished copper products and certain other products made from copper. The Department of Commerce has recommended that a phased universal tariff of 15% be applied to refined copper from January 1, 2027, increasing to 30% on January 1, 2028.
copper.
“The COMEX-LME spread is increasingly a measure of U.S. tariff expectations, and widening premiums signal increased tariff risk, continuing to draw metals into the U.S.,” Ewa Mansey, commodity strategist at ING, told CNBC in an email.
The United States imported more than 200,000 tons of copper in July, the highest level in 12 years.
Analysts at SocGen, led by FIC head of commodity research Mike Haig, said U.S. policymakers are increasingly concerned about the U.S.’s dependence on refined copper imports as AI infrastructure, grid modernization and defense spending accelerate global demand.
He said the Section 232 search reflected the broader purpose of “ensuring access to materials deemed important to both economic growth and national security.”
Copper price forecast
To convert spreads into tariff odds, SocGen modeled the cost of moving LME-grade copper from European warehouses to the U.S. East Coast and compared its all-in delivery price to COMEX futures. Analysts said the current COMEX premium for fully delivered LME metals suggests a 14.6% chance that the Secretary of Commerce’s recommended 15% phased universal tariff will be achieved by January 2027.
The probability of 30% tariffs being imposed by January 2028 increases to 37%.
Natalie Scott-Gray, senior metals demand strategist at Stone In a recent market commentary, Scott Gray said blanket tariffs would depress supply outside the US, whereas without tariffs COMEX and LME arbitrage would not be undone.
Manthey said the widening of premiums will continue to support copper prices in the near term, “particularly as mining supply remains tight and competition for available metals intensifies between the United States and China.”
“We remain positive on copper, but volatility is likely to remain high due to tariff uncertainty,” he added.
