Copper traders rush metal to Hawaii to capture mega tariff trade

Economic Times

2 days ago

Synopsis
Traders are now racing against time, facing potential losses if cargoes arrive after the August 1st deadline.
ET Online New York futures spiked to a roughly 25% premium over international benchmark prices in the wake of Trump's initial announcement on Tuesday. Copper traders racing to get cargoes into the US are looking to shift deliveries into Hawaii and Puerto Rico to cut shipment times, as Donald Trump's plan for 50% tariffs threatens to slam the door on a hugely profitable arbitrage trade that has gripped the industry for months.New York futures spiked to a roughly 25% premium over international benchmark prices in the wake of Trump's initial announcement on Tuesday, which means traders who can deliver metal into the US before the new levies stand to capture an even larger profit — or face big losses if the clock runs out.Trump's announcement points to the culmination of a dramatic shift that has played out in the copper market ever since the president first announced plans to put tariffs on copper in February. The resulting surge in US prices prompted an industry-wide dash to deliver metal into the US; stockpiles inside the country have soared, while the rest of the world faced a mounting supply squeeze.
The shipments had been reducing in scale in recent weeks, as some traders started to brace for a tariff announcement, according to people familiar with the market. But there are still large volumes of copper on their way to US ports, they said.
Copper inventories in the US are likely to hit 500,000 tons in the coming weeks, roughly half of which is in the key US storage hub of New Orleans, according to estimates from participants active in the market. Metal is also being stored in Port Panama City in Florida. Frazzled traders described pulling all-nighters through the turmoil as they responded to Tuesday's news, making decisions over what to do with cargoes already on their way to the US, and whether to try to squeeze in further shipments. While tariffs were eventually expected, 50% was higher than many in the market were betting on. The president confirmed that rate in a social-media post late Wednesday, as well as a plan for it to kick in from Aug. 1.
Some traders desperate to get their hands on last-minute metal are willing to pay big premiums — offering close to $400 a ton on top of London Metal Exchange prices — and seeking to divert shipments headed for China toward the US instead, according to people involved in the market, who asked not to be identified discussing commercially sensitive information. Buyers are particularly willing to pay more for brands that are eligible for delivery against Comex contracts, meaning that they could re-sell them on the exchange as a last resort if they cannot find other homes for the copper upon arrival in the US.Shipments from Asia to New Orleans typically take over a month, so any traders sending metal now would risk being caught on the wrong side of the tariffs, which are due to become effective at the start of next month.But the journey to Hawaii is roughly ten days, and at least one trader has already completed a shipment to the Pacific state, according to a person familiar with the matter. For producers in South America, Puerto Rico is a similarly attractive delivery point because it is part of the US customs territory, some of the traders said.In Chile, the key supplier of copper to the US, mining companies have been huddled in meetings to discuss how to prioritize shipments to the US through the end of July under their agreements with existing customers.Trump's announcements means that traders now face a race against time — especially those that paid large premiums to get their hands on copper cargoes. They stood to make a huge profit shipping that metal to the US, but now face the risk that the tariffs will be implemented while the metal is on the water.Traders are also wrestling with a long list of unknowns. Besides the timing, Trump's remarks leave questions over which types of copper will be subject to tariffs. Previous metal tariffs imposed by the administration have also exempted cargoes already on the water when the levies take effect, providing potential wiggle room for traders willing to take that risk. The size of the gap between New York and London prices — far below 50% — also suggests a level of uncertainty about whether a 50% tariff will really be universally applied on refined copper imports.