Copper to Record Highs Amid Tariff Threats

Tariff threats have helped boost copper prices to record highs, but with uncertainty creeping in,  copper has sharply come off its highs and not everyone is convinced there will be more upside.

Paging Dr Copper

Copper has a long-standing reputation for being regarded as an economic barometer, with rising prices typically indicating strong growth and declining prices signalling a slowdown. Yet, the recent move to record highs seems a bit paradoxical amid ongoing concerns over economic prospects. This raises questions about whether Dr Copper has lost its predictive ability or if other factors are at play that are confusing the market.

The upward move in copper prices has been primarily attributed to the potential imposition of tariffs on imported copper by the US government, which could take effect as early as Wednesday. Donald Trump signed an Executive Order recently to assess national security risks associated with copper imports.

However, copper had already been rising before this, gaining around 30% since the start of the year. Analysts pointed to the stockpiling of the metal in the US in anticipation of potential tariffs as the main factor driving price increases.

Potential Winners and Obstacles

Stockpiling copper is one reason cited by BNP Paribas in predicting that copper prices will plummet once tariffs are imposed. They argue that fundamental demand has not changed, and after tariffs are implemented, importers will run down their existing stockpiles before replenishing them. BNP has also lowered its forecast for demand growth this year, citing slowing global trade.

But on the other hand, China is looking to boost domestic consumption of copper as it pours hundreds of billions of dollars into stimulating its economy and electrification projects. Shipments are already being shifted to meet changing demand dynamics, positioning some miners in a better position to capitalise on the situation, regardless of whether prices collapse later or not.

Chilean producers have begun redirecting production to meet higher (potentially transitory) demand from the US and take advantage of the higher prices. With the world's largest copper reserves, Chile stands to benefit from the higher prices but also from a potential retracement due to oversupply, as the country's relatively low-cost production would likely give it a competitive advantage.

For instance, London-listed Antofagasta forecasts that copper will be produced at $1.45-1.65/lb (net of cash costs). The company is undergoing an extensive modernisation programme, with capital expenditure expected to peak this year, implying increased cash flow going forward.

Antofagasta Double Top Signals Decline

Antofagasta recently formed a descending wedge to 1575, suggesting that if this pullback ends above support levels observed at 1340 and 1280, it might be followed by a move towards 2500 via 2000 and the 2080 peak. If this plays out, the record peak will be in play.

Source: SpreadEx / Antofagasta

Key Takeaways

The threat of tariffs has driven copper prices to record highs, but there is uncertainty about the course of the metal. Stockpiling copper in the US in anticipation of tariffs and the potential shift in demand dynamics from China creates an intricate landscape, with both opportunities and challenges for producers. But ultimately, the interplay between these factors will determine the fate of copper prices in the coming months.