U.S. Copper Prices Plunge 22% After Unexpected Tariff Exemption

The global copper market experienced a significant shock as the U.S. President unexpectedly granted exemptions to major refined copper products, defying market expectations. This move resulted in substantial losses for traders who had bet on rising U.S. copper prices. Conversely, speculators who had anticipated a change in the administration's stance on tariffs emerged victorious.

The exemption, which caught many by surprise, particularly those who had not believed in the administration's threat of imposing tariffs, led to a dramatic shift in market dynamics. Analysts from a prominent financial institution expressed shock at the decision, noting that those who had positioned themselves against the tariffs saw significant gains.

The market's reaction was swift and pronounced, with the price of copper experiencing a notable decline. This sudden shift underscored the volatility and unpredictability of the copper market, which is heavily influenced by geopolitical factors and policy changes. The exemption not only impacted the immediate price of copper but also had broader implications for the global supply chain, as it affected the flow of copper into and out of the London Metal Exchange (LME) warehouses.

The decision to grant exemptions to major refined copper products was seen as a strategic move by the administration, aimed at mitigating the economic impact of tariffs on key industries. However, it also highlighted the complex interplay between trade policy and commodity markets, where sudden changes can lead to significant market movements.

The exemption also raised questions about the future of trade relations and the potential for further policy shifts. As the market continues to navigate these uncertainties, traders and investors will need to remain vigilant and adaptable, ready to respond to any new developments that could impact the copper market. The recent events serve as a reminder of the importance of staying informed and prepared in a rapidly changing economic landscape.

On July 30, the U.S. President signed a proclamation announcing that starting August 1, only semi-finished products such as copper pipes, wires, and cables, as well as copper-intensive finished products, would be subject to a 50% tariff. However, refined copper, including cathode and anode copper, which is the mainstream of international trade, was exempted from the tariff.

This unexpected move immediately triggered a dramatic market response, with copper futures prices on the New York Mercantile Exchange plummeting by 22% on Wednesday, marking the largest single-day decline since at least 1988. The market's dramatic shift meant that a large number of long positions based on expectations of U.S. protectionist policies faced significant losses, while those who bet on the administration's potential policy reversal, known as "TACO" traders, reaped substantial rewards.

Option market data showed that over 31,000 contracts suddenly moved from out-of-the-money to in-the-money (profitable) status overnight, with a nominal value surging to 354 million dollars. The unexpected decision by the administration led to the collapse of what was once hailed as one of the most profitable commodity trades in modern history.

Since the administration first hinted at the possibility of imposing tariffs earlier this year, U.S. copper prices had surged relative to other global markets. Traders rushed to capitalize on the high premiums by shipping copper to U.S. ports. The announcement of a higher-than-expected 50% tariff rate in early July further fueled this rush. The core of this strategy lay in the significant price differential between New York Comex copper and London Metal Exchange (LME) copper.

Just a week prior, the premium on Comex copper had exceeded the LME benchmark price by more than 20%. However, with the announcement of the tariff exemption, the price differential quickly vanished. Comex copper prices plummeted by 22% on Wednesday, while LME copper prices fell by only 0.9%, with the former even turning into a discount relative to the latter.

Analysts noted that this move significantly deviated from market expectations, leaving those who had bet on rising U.S. copper prices with substantial losses. However, they maintained that the market fundamentals remained unchanged and did not anticipate a large-scale shift in copper flows. They continued to hold the view that Comex prices should at least match LME prices.

For traders who had doubted the administration's commitment to imposing tariffs, this was a significant victory. Option market data vividly illustrated this reversal. By Tuesday evening, only 675 put option contracts were in the money, with a nominal value of 94.4 million dollars. Following the exemption announcement, the number of profitable put option contracts surged to over 31,000, with a total value of 354 million dollars. A seasoned market strategist with over two decades of experience in copper options and futures trading commented that the sudden shift was akin to winning a lottery, highlighting the extreme outcomes that can result from the unpredictable nature of tariffs and policies.

In Washington, extensive lobbying efforts by various stakeholders, including U.S. copper producers, semi-finished product manufacturers, scrap yards, and foreign governments, influenced the policy's direction. Notably, the prospect of import tariffs on refined copper has not been entirely ruled out. The U.S. Department of Commerce has proposed delaying the imposition of tariffs until 2027, starting at 15% and increasing to 30% by 2028. The administration has directed the department to provide an update on the U.S. copper market by June 30, 2026.