Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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Tariff threat dislocates HG copper from global prices
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- HG copper futures traded in New York surged over 5% after Trump suggested imports of the metal, just like aluminum and steel, would be subject to a 25% tariff
- The initial response saw HG copper futures jump to trade at a 10% premium to prices on the London Metal Exchange (LME), thereby dislocating further from international prices
- While tariffs will drive US copper prices above international levels, today's spike may still be premature given an investigation carried out under Section 232 of the Trade Expansion Act normally takes month to be completed
- We view current high price levels as non-representative of current supply and demand fundamentals but, overall, maintain our long-held, long-term bullish outlook, given the energy transition that will lead to surging demand for power and its conductor
Global financial markets remain on an emotional edge amid a constant flow of news from the Trump administration. In commodities, we have seen prices across several raw materials respond differently to the prospect of US import tariffs and retaliatory measures by its main counterparts, including Canada, Mexico, and China. Crude oil trades lower amid fears that a global trade war may negatively impact global economic activity and, with that, demand for fuel products. Elsewhere, several US-produced farm goods traded lower after top buyer China placed levies on a number of US produced products, including corn, soybeans, wheat, and cotton.
In a 100-minute-long address to Congress, Trump yesterday defended his economic plans and called for a wide range of tax cuts and spending reductions, while also repeating the administration’s intention—on national security grounds—to slap a 25% tariff on imports of aluminium, steel, and, importantly, copper. HG copper futures traded in New York surged over 5% after Trump suggested imports of the metal would also be subject to the high tariff—a move that, if implemented, would drive the premium in the New York markets well above the international price references in London and Shanghai. The initial response saw HG copper futures jump to trade at a 10% premium to prices on the London Metal Exchange (LME), before arbitrage activity saw traders step in to take advantage of the wide and potentially premature spike.
While the US president has already signed an executive order to impose that levy on aluminium and steel from 12 March, the copper market may have seen a premature reaction, in the sense that an investigation carried out under Section 232 of the Trade Expansion Act normally takes months to be completed. This means the impact on prices will take longer to be felt than what is currently being priced in.
However, a 25% tariff was clearly not what the market was expecting, and now traders are scrambling to price in the correct level—whatever that might end up being. Whatever the final tariff—if any—ends up being, the disruption to global trade flows is very real. For several weeks, we have already seen this disruption play out in the precious metals market, where millions of ounces of physical silver and gold bars have been transferred to vaults in the US to avoid having to pay tariffs on imported metals used to cover short hedge positions in the COMEX futures market.
In today’s trading, we have seen the cash-to-futures spread in silver widen again as traders take note of surging copper prices in New York, especially given the still-unresolved question of whether silver will also be impacted by tariffs. Gold, meanwhile, has stabilised following a massive transfer that has seen COMEX exchange-monitored stocks surge to levels last seen during the 2021 Covid-19 disruption to transatlantic flows.
Looking ahead, and until the level of tariff becomes official, the US copper market will likely exhibit a greater level of volatility—some of which will filter through to London—as the worldwide hunt for copper that can be shipped to the US before any tariffs are imposed will support prices. The LME exchange will experience a draw on inventories, which is already being reflected in the spot-to-three-month spread. Following a long period of ample supply, the spread traded at a wide contango—an expression of a well-supplied market—but has now tightened to flat for the first time in 18 months.
We maintain our long-held bullish outlook for copper, given the energy transition that will lead to surging demand for power—particularly towards electric vehicles (EVs), data centres, and cooling, as temperatures rise across the world. However, in this context, we view current price levels as non-representative of current supply and demand fundamentals, merely reflecting the need to shift metals around the world to avoid tariffs. Inadvertently, in the short term, this may have a slightly negative impact on the overall global demand outlook.
Recent commodity articles:
4 Mch 2025: Stagflation and geopolitical tensions fuel renewed demand for gold
3 Mch 2025: COT Report: Broad retreat sees WTI longs slump to 15-year low
28 Feb 2025: Commodities weekly: Broad weakness as tariff fatigue sets in
24 Feb 2025: COT Report: traders turn selective despite ongoing broad rally
21 Feb 2025: Commodities weekly: energy market strength and Trump rethoric fuel surge
18 Feb 2025: COT report: crude, gold and grains see mild profit taking
5 Feb 2025: Broad Strength Drives Commodities sector to 26-month High
4 Feb 2025: Crude Oil Wipes Out 2025 Gains as Tariffs and Demand Weighs
3 Feb 2025: COT Report: Mixed Week Seen Ahead of Trump's Tariff Offensive
1 Feb 2025: YouTube: Joining Kevin Muir on The Market Huddle podcast
31 Jan 2025: Commodities weekly: Strong January led by precious metals
29 Jan 2025: Agriculture sector rally led by coffee, corn and cattle
27 Jan 2025: COT Report: Commodity buying extends to fourth week
24 Jan 2025: Commodities weekly: Trump tariff threats and energy agenda in focus
23 Jan 2025: Crude oil weakens amid tariff uncertainty
22 Jan 2025: Gold and silver see fresh gains as Trump 2.0 era begins
20 Jan 2025: COT Report: Elevated commodities longs face short-term risks
17 Jan 2025: Commodities weekly: Strong January rally pauses ahead of Trump
15 Jan 2025: Q1 2025 Commodity outlook: A bumpy road ahead calls for diversification
14 Jan 2025: COT Report: Hedge fund long jumps to 17-month high led by crude, gas and metals
13 Jan 2025: Crude oil rally amid winter demand and Russian sanctions
10 Jan 2025: Commodities weekly: Strong start to the year led by energy and metals
7 Jan 2025: COT Report: Managed money's year-end positioning in forex and commodities
Podcasts that include commodities focus:
4 March 2025: Are we on the verge of a big whoosh?
25 Feb 2025: Meltdown risks are rising. What to watch next
18 Feb 2025: Europe is on fire
5 Feb 2025: Mag 7 risks underappreciated?
3 Feb 2025: If new Trump tariffs stick, markets have only just begun to react
31 Jan 2025: Does the market think Trump is bluffing?
29 Jan 2025: The DeepSeek winners emerge
27 Jan 2025: DeepSeeking missile strikes global markets
24 Jan 2025: Four days in, Trump continues to dominate headlines, but ...
20 Jan 2025: Trump 2.0 swings into action
17 Jan 2025: Brace for Monday, as a new era begins
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