Will U.S. Tariffs Disrupt Copper and Aluminum Markets – OilPrice.com

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• Comex copper prices have risen due to trader speculation about potential U.S. tariffs, while LME prices have seen a more modest increase.
• The divergence between Comex and LME copper prices is atypical, as the two usually move in sync.
• The U.S. dollar’s strength and potential interest rate cuts by the Fed are also influencing copper prices.

The Copper Monthly Metals Index (MMI) trended sideways overall, with a modest 0.65% decline from December to January. Meanwhile, the price of copper continues to react to new U.S. leadership and potential changes in trade policy.

Traders Bet on Higher U.S. Copper Prices

Ahead of President Trump’s inauguration, Comex copper prices started to break out of their sideways range. By mid-January, copper prices hit their highest level since early November. This is likely due to traders pricing in the impact of potential tariffs, some of which may impact the copper market. Conversely, LME copper prices experienced only a modest increase, resulting in at least a short-term bifurcation between the two exchanges.

Comex and LME prices typically move in sync with each other, making occasions in which they diverge quite interesting. Since 2019, the two price points have boasted a 99.76% correlation, with Comex prices holding an average $19/mt premium over LME prices. As of January 14, that premium increased to $402/mt. It remains unclear whether that premium will hold in the coming years or if the atypically high spread will retreat as it has in the past

Last Major Divergence Was Q2 2024

Previous occasions of divergence proved temporary. This included the Comex short-squeeze in late May, which triggered the end of the Q2 2024 rally across the base metal category. During that event, the delta between LME and Comex copper prices jumped to nearly $688/mt and Comex prices found a new all-time high at $11,257/mt. 

However, the spread soon retreated , aided by the redirection of trade flows toward the U.S. market. Although the Comex copper contract boasts comparable market participation to the LME, inventory volumes make it a much more illiquid contract. As a result, it is particularly prone to spikes when stocks become depleted.

Source: MetalMiner Insights, Chart & Correlation Analysis Tool 

The October port strike also saw the delta between Comex and LME copper prices balloon, albeit to a much lesser extent. Comex prices rose more sharply ahead of the three-day strike, causing the spread to hit $292/mt before the mediators reached an agreement.

Copper Prices Diverge from Aluminum Prices

While also potentially vulnerable to upcoming tariffs, the aluminum market behaved differently compared to the copper market. Indeed, the LME and Comex aluminum contracts showed no indication of a split, holding a narrow spread between the two price points in early January. Since 2022, Comex and LME aluminum prices have held a strong 99.25% correlation.

Source: MetalMiner Insights, Chart & Correlation Analysis Tool 

So far, the threat of tariffs within the U.S. aluminum market has mostly made itself known through the Midwest Aluminum Premium. Despite what was described by certain distributors as a sideways market throughout Q4, both spot and three-month futures for the premium have been on the rise since late October. 

Source: MetalMiner Insights, Chart & Correlation Analysis Tool 

Analysts and Buyers Continue to Monitor Tariff Policies

Volatility remains a risk for both the price of copper and aluminum as markets await more concrete plans about what products and countries will find themselves on the wrong end of new trade barriers. This could cause recent price gains to rise further or plummet should reality not match trader expectations. 

Some of the tariffs floated by President Trump are likely being used as negotiation tactics, which means they may not be applied to the full extent or occur at all should other concessions be made. Meanwhile, reports show the Trump administration is currently weighing a more gradual implementation process for tariffs, which would likely temper market reactions. What’s next for copper prices in 2025? Read MetalMiner’s outlook and contracting strategies for the new year.

Strong U.S. Dollar Tempers the Price of Copper

The U.S. dollar index remains strong, which has placed a lid on commodity prices. In fact, the dollar rose above 109 by January 15, its highest level since November 2022. Meanwhile, strong U.S. economic data has cast doubt on whether 2025 will see further rate cuts. This puts market expectations at odds with plans by the Fed, which is likely to continue cuts, albeit at a slower pace than what occurred during the second half of 2024. 

Source: MetalMiner Insights, Chart & Correlation Analysis Tool 

The Fed’s Christopher Waller told markets that another rate cut could come as early as the first half should inflation data prove favorable. In an interview with CNBC, Waller noted, ??“The inflation data we got yesterday was very good.” While markets remain in disbelief, another cut could put pressure on the U.S. dollar index, potentially halting the current uptrend. A drop in the DXY would add downside pressure for metal prices like copper.

By Nichole Bastin

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