In recent weeks, the copper market has shown a notable shift in pricing dynamics between COMEX) and LME futures contracts. From late April to mid-May, the Dec-25 spread narrowed from $1,708 per metric ton to $1,113, reflecting a reassessment of geopolitical risk, policy uncertainty, and trade expectations.
This adjustment is not tied to new policy announcements, but to the market recalibrating its expectations regarding potential import tariffs on refined copper in the United States.
What is driving the COMEX-LME copper spread?
The spread is influenced by physical copper supply, inventory levels, and geopolitical risks. Recently, the market-implied probability of a 25% US copper import tariff by the end of 2025 declined significantly, from over 70% to under 50%. This shift follows US concessions on tariffs in other sectors, including delays and exemptions in automotive and electronics.
Investors are interpreting these concessions as a sign that the administration may take a more flexible stance on copper-related trade actions, reducing the urgency to price in aggressive tariffs.
Long copper spread: A trading opportunity
Despite the fall in implied tariff probability, a 25% import duty remains a plausible scenario. If implemented, it would align copper with tariffs already imposed on steel and aluminum under Section 232.
Given the spread’s current level and the potential for tariffs to still be enacted, there is an opportunity to enter a long position in the Dec-25 COMEX-LME copper spread. This strategy involves buying copper on COMEX and selling it on LME, anticipating that the US price will rise relative to the global benchmark if import costs increase.
For institutions or hedgers with cross-market copper exposure, this spread offers a defined risk-reward profile.
What if tariffs are not imposed?
If no tariff is introduced, US copper prices could come under pressure. Domestic inventories are already at their highest level since 2012. In this scenario, surplus copper in the US would likely be re-routed to LME-approved warehouses, easing global supply constraints and narrowing the premium on international markets.
Additionally, metal that would otherwise remain in the US may instead flow into China or Europe, alleviating tightness in those markets. This would likely push COMEX prices below LME levels, reversing the current spread.
US inventories and physical flows
As of mid-May, US refined copper inventories have increased by approximately 270,000 tons since late April. While this rise is substantial, its impact on the COMEX-LME spread is relatively minor.
The most relevant price movement has been in LME time spreads, which have tightened due to ex-US market tightness. This suggests that the narrowing of the COMEX-LME spread is more a function of shifting forward curves and global positioning than a result of physical stock buildup in the US alone.
Global policy signals
The current copper outlook is also influenced by broader geopolitical and regulatory developments:
- Tariff negotiations: The US recently granted tariff concessions to trading partners in other metals sectors. While copper was not included, the move suggests openness to deal-making, which adds uncertainty to future tariff implementation.
- Domestic mining policy: US executive orders have aimed to streamline permitting for new mining projects. While designed to promote self-sufficiency, these initiatives face legal and environmental challenges. If domestic supply cannot be accelerated, import restrictions may become the preferred route to support local refining capacity.
- Copper scrap exports: US scrap copper exports have declined modestly year-to-date, but remain active. Current trade restrictions—especially with China—have reshaped the flow of scrap, but no comprehensive export ban is expected. Secondary copper availability still plays a role in shaping market balances.
Technical insights on the spread
The COMEX-LME spread can reflect multiple inputs: regional supply tightness, currency risk, storage cost differentials, and tariff expectations. Recent data shows that the tightening of LME forward spreads has had a larger effect on the Dec-25 spread than changes in COMEX forward curves.
In other words, global demand for copper outside the US—especially in Asia—is keeping LME markets tight, while US domestic supply continues to grow. This imbalance is reflected in the shrinking arbitrage window.
Strategic takeaways
- The compression in the COMEX-LME copper spread has created a tactical entry point for long spread trades.
- Tariff fatigue may have led the market to underprice future policy risk.
- Inventories and forward spreads indicate that the decline is sentiment-driven rather than fully justified by physical fundamentals.
- Cross-market hedging strategies should take into account the possibility of US trade policy realignment in the next 12 to 18 months.
For companies exposed to US copper pricing, or for those sourcing internationally, monitoring this spread offers valuable insight into potential cost shifts and arbitrage opportunities across futures markets.