Arbitrage Profits Vs. Tariff Risk
In recent days, weโve seen the ๐๐ ๐/๐๐ ๐ ๐ฐ๐ผ๐ฝ๐ฝ๐ฒ๐ฟ ๐ฎ๐ฟ๐ฏ๐ถ๐๐ฟ๐ฎ๐ด๐ฒ ๐ฏ๐ฎ๐น๐น๐ผ๐ผ๐ป ๐๐ผ ๐ฟ๐ฒ๐ฐ๐ผ๐ฟ๐ฑ ๐ต๐ถ๐ด๐ต๐ as the expected timeline for U.S. tariffs on copper imports has been significantly tightened - from 9 months to a matter of weeks. While no specific rate is guaranteed, the risk has become very real for traders with metal already en route to the U.S. or allocated for future shipments.
At first, this arbitrage opportunity seemed like a gold mine. Traders who sold CME copper futures and bought LME copper futures at an ๐ฎ๐ฟ๐ฏ ๐ผ๐ณ +$๐ญ,๐ฌ๐ฌ๐ฌ/๐บ๐ ๐ผ๐ฟ ๐ฒ๐๐ฒ๐ป +$๐ญ,๐ฑ๐ฌ๐ฌ/๐บ๐ stood to make massive profits by delivering metal into a CME warehouse or directly to a U.S. consumer. Some estimates suggest ๐๐ฝ ๐๐ผ ๐ฑ๐ฌ๐ฌ,๐ฌ๐ฌ๐ฌ ๐ ๐ง ๐ผ๐ณ ๐ฐ๐ผ๐ฝ๐ฝ๐ฒ๐ฟ is now headed to the U.S. to take advantage of this play.
But ๐๐ต๐ฎ๐ ๐ต๐ฎ๐ฝ๐ฝ๐ฒ๐ป๐ ๐ถ๐ณ ๐ฎ ๐ฎ๐ฑ% ๐๐ฎ๐ฟ๐ถ๐ณ๐ณ ๐ถ๐ ๐ถ๐บ๐ฝ๐น๐ฒ๐บ๐ฒ๐ป๐๐ฒ๐ฑ? That would add an import duty of ~$2,500/mtโfar outweighing even the most aggressive arbitrage levels. Suddenly, a trade that was making +$1,000/mt could be ๐น๐ผ๐๐ถ๐ป๐ด -$๐ญ,๐ฌ๐ฌ๐ฌ/๐บ๐ instead.
๐ช๐ต๐ฎ๐ ๐๐ฟ๐ฒ ๐๐ต๐ฒ ๐ข๐ฝ๐๐ถ๐ผ๐ป๐ ๐ณ๐ผ๐ฟ ๐ง๐ฟ๐ฎ๐ฑ๐ฒ๐ฟ๐?
1๏ธโฃ ๐ฅ๐ฒ๐ฑ๐ถ๐ฟ๐ฒ๐ฐ๐ ๐ฆ๐ต๐ถ๐ฝ๐บ๐ฒ๐ป๐๐: Even metal already on the water can be rerouted to other locationsโthough at a cost.
2๏ธโฃ ๐จ๐ป๐๐ถ๐ป๐ฑ ๐๐ต๐ฒ ๐๐ฟ๐ฏ๐ถ๐๐ฟ๐ฎ๐ด๐ฒ: Traders could deliver copper against an LME-priced short instead. While this means closing out their arbitrage trades, it might be less costly than paying the tariff.
3๏ธโฃ ๐ง๐ฎ๐ธ๐ฒ ๐๐ต๐ฒ ๐ฟ๐ถ๐๐ธ ๐ผ๐ป ๐๐ฎ๐ฟ๐ฟ๐ถ๐ณ๐: Continue sending copper to the US and hope that tariffs are either not implemented, there are exceptions or quotas (like the section 232 on Aluminum), or that the cost of any import tariff remains below the level of arb they booked at.
๐ช๐ต๐ฎ๐ ๐๐ฏ๐ผ๐๐ ๐๐ผ๐ฝ๐ฝ๐ฒ๐ฟ ๐ฃ๐ฟ๐ฒ๐บ๐ถ๐๐บ๐?
The ๐จ.๐ฆ. ๐ฐ๐ผ๐ฝ๐ฝ๐ฒ๐ฟ ๐ฝ๐ฟ๐ฒ๐บ๐ถ๐๐บ has collapsed as traders rush to sell physical metal to capture the arbitrage profitsโwho cares about the premium when the arbitrage is paying $1,000/mt? Meanwhile, premiums in ๐ฅ๐ฒ๐๐ ๐ผ๐ณ ๐ช๐ผ๐ฟ๐น๐ฑ (๐ฅ๐ข๐ช) ๐บ๐ฎ๐ฟ๐ธ๐ฒ๐๐ ๐ต๐ฎ๐๐ฒ ๐๐๐ฟ๐ด๐ฒ๐ฑ as traders scramble to source material.
๐น If tariffs hit, expect a reversal:
โ
U.S. premiums will spike as domestic producers adjust prices to reflect higher import costs.
โ ROW premiums will fall as excess copper floods the market.
This is a high-stakes moment for copper traders. ๐ช๐ต๐ฎ๐โ๐ ๐๐ผ๐๐ฟ ๐๐๐ฟ๐ฎ๐๐ฒ๐ด๐โ๐ต๐ฒ๐ฑ๐ด๐ฒ & ๐ฟ๐ฒ๐ฑ๐ถ๐ฟ๐ฒ๐ฐ๐, ๐ผ๐ฟ ๐ฟ๐ถ๐ฑ๐ฒ ๐๐ต๐ฒ ๐ฟ๐ถ๐๐ธ?
