(Bloomberg) -- Copper prices jumped by more than 5% in New York — leaping further above other global benchmarks — as US President Donald Trump suggested imports of the metal could be subject to a 25% tariff.
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Trump’s comments — made in a speech to Congress Tuesday — sparked a frenetic rally in Comex copper prices in Asian hours as traders reacted to the possibility that levies could be larger than expected, and come much sooner.
Last week, Trump announced that the Commerce Department would undertake a sweeping investigation that may lead to copper tariffs on national security grounds. That triggered a sharp rally in Comex prices, widening the gap with equivalent prices in London and Shanghai.
It could take months for the department to decide whether tariffs should be imposed, but Trump suggested Tuesday that he’d already enacted a 25% levy. He previously signed an order to impose tariffs at that level on aluminum and steel, due to kick in March 12.
“A 25% tariff was clearly not what the market was expecting before those comments, and now traders are scrambling to price in the correct level, whatever that might end up being,” said Ole Hansen, head of commodity strategy at Saxo Bank AS. “The disruption to global trade flows is very real.”
The surge on the Comex also triggered a smaller rally on the London Metal Exchange, with three-month prices rising as much as 2.5%. New York futures have been trading at a hefty premium to the LME for months as investors price in the growing likelihood of tariffs, and Wednesday’s gain left Comex copper almost 12% higher than the LME, nearing a peak of about 13% seen last month.
The huge differential has already touched off a worldwide hunt for copper that can be shipped to the US before any tariffs are imposed, and traders are likely to redouble those efforts following Wednesday’s jump.
With LME prices hovering around $9,500 a ton and New York prices trading about $1,000 higher, the arbitrage presents a lucrative opportunity for a market used to operating on razor-thin margins.
Comex copper inventories — which swelled after a similarly large price spike on the exchange last year — have been drawing down in recent days, indicating that US manufacturers may also be looking to stock up before tariffs come into effect. Meanwhile, requests to withdraw the metal from the LME have soared.