The markets are already behaving strangely. Copper futures spiked upward, obviously.
Copper is used in a vast array of consumer and industrial products.
Most businesses, even if only marginally, are affected by the price of copper. While the cost of copper is going up for American businesses and consumers, the rest of the world is scratching its head while it enjoys a considerable discount on the price of copper.
Trump thinks the U.S. will become self-sufficient in copper production, but that is extremely unlikely to happen, according to Bernstein analysts Bob Brackett and Andrianto Guntoro:
“The US is home to only two primary smelters. The cost of building a smelter is perhaps $6 bln per million tons capacity … The timeline of building a smelter from scratch is perhaps 5 years. Globally, smelters are oversupplied, and smelter economics are terrible (negative treatment charges/refining charges). It is highly unlikely that a company would invest $5-6 bln for a project that wouldn’t be operational during a Trump presidency with poor margins. Therefore, the tariff incents no proper economic action but rather simply adds cost to US manufacturers. Therefore, we think logic ultimately prevails, and the policy is radically transformed (keeping 50% on everyone else but exempting ‘friendly trading partners’ Chile, Canada and Peru from the tariffs solves the problem),” they told clients.
Jefferies analysts Christopher LaFemina and Patricia Hove agree: “The US will still rely on foreign mines to meet demand for the foreseeable future.”
In the meantime, weird distortions in the metals markets have already started to kick in.
In addition to the New York-London spread, there’s suddenly a rally in scrap copper.
Bloomberg’s John Authers reports: “A short-term fix … requires boosting production from copper scrap, which has traditionally been shipped to processors overseas. The surge in Comex prices invariably fed into scrap. That might now turn out to be a lifeline, even if temporary, while policymakers await the broader impact from tariffs.”
This is where we are now: The Golden Age of scrap metal.
Here’s a snapshot of the action prior to the opening bell in New York:
