Looking to the Futures

Copper futures (/HG, currently calling for May delivery) reached a record intraday high of $5.374 Tuesday night before settling at $5.243 on Wednesday, also a record. The rolling front-month contract is up 27% for the year. The rally in the red metal followed a report on Tuesday that the Trump administration could impose 25% tariffs on copper imports within weeks rather than months.

For background, on February 25 President Trump signed an executive order directing the Department of Commerce to investigate potential national security risks of copper imports. The Commerce Department will conduct the investigation based on the Trade Expansion Act of 1962 which allows the president to restrict imports of products that may threaten to impair national security. The Bureau of Industry and Security within Commerce has up to nine months to deliver the report. However, Bloomberg reported on Tuesday that the tariffs could be imposed within weeks. The new copper tariffs would follow recent changes to steel and aluminum tariffs, where the White House modified existing tariffs to remove exclusions. There is a similar investigation underway on lumber imports.

With tariffs looming, producers are working to move copper into the country ahead of the higher prices. Swiss commodities trader Mercuria estimated that there are 500,000 tons of copper headed to US ports, versus a monthly average of 70,000 tons. That demand is reflected in the differential between domestic copper futures prices versus futures on the London Metal Exchange, which recently widened to over $0.70/lb.

Exchange rates are also contributing to copper’s strength. The dollar index ($DXY) is down nearly 4% for the year. More specifically, the dollar is down approximately 6.4% year-to-date against the Chilean peso. Chile provides over 80% of US copper imports in normal market conditions. Also in Chile, Glencore has suspended shipments from its Altonorte smelting plant due to issues with its furnace. Imports as a whole make up nearly half of US consumption. On the domestic supply side, the Resolution Copper project in Arizona could come online in coming years and provide around 25% of US copper needs.

There has been a significant uptrend since the start of the year. That trend has taken the RSI into overbought territory several times this year, including this week. The fade on Thursday brought the contract near the 9-day SMA, but it has been above the 20-day for two weeks and hasn’t settled below the 50-day since the start of the year. The MACD has been positive for the past three weeks.

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