The Copper and Aluminum Playbook: Seizing Opportunities in the US-China Trade Truce Era

The 90-day tariff truce between the U.S. and China, effective May 14, 2025, has created a critical window for investors to capitalize on near-term volatility and structural demand in base metals. With copper and aluminum markets caught in a perfect storm of geopolitical shifts, supply constraints, and surging industrial demand, now is the time to act—but only for those prepared to navigate risks.

Copper: A Structural Bull Market Ignites

The Shanghai Futures Exchange (SHFE) copper inventory data tells a stark story: stocks have plummeted to multi-month lows, falling 60% year-to-date due to robust Chinese demand and disrupted scrap imports from the U.S. This supply crunch is compounded by severe backwardation in futures markets, where near-term contracts now trade at a 2.1% premium to those expiring later—a signal that physical scarcity is driving immediate buying.

The Yangshan premium—a key indicator of Chinese import demand—has surged to $100/ton, a 43% jump since late March. This reflects manufacturers’ desperation to secure physical copper for green energy projects, construction, and electronics. Meanwhile, U.S. COMEX copper inventories have swelled to a six-year high of 160,250 tons, as traders exploit tariff-driven price differentials between regions.

Investment Play:
- Buy physical copper ETFs (e.g., CPER) or mining stocks with exposure to high-grade deposits, such as Freeport-McMoRan (FCX) or Southern Copper (SCCO).
- Short the U.S.-China trade volatility index (e.g., VXD) to hedge against tariff renegotiations.

Aluminum: The U.S. Production Crisis Deepens

While copper’s demand story is global, aluminum’s struggles are distinctly American. U.S. primary aluminum production has collapsed to 670,000 tons annually, just 17% of domestic consumption, as energy costs and tariffs strangle competitiveness.

The reinstatement of 25% Section 232 tariffs on all aluminum imports in March 2025 has sent the Midwest Premium (MWP) soaring to $0.40/lb, pricing out manufacturers and forcing reliance on recycled scrap. With only four operational smelters and energy costs 40–60% higher than Canadian rivals, U.S. primary production is economically unviable without long-term power contracts.

Investment Play:
- Focus on global aluminum majors with low-cost production, such as Alcoa (AA) or Hydro (HYO), which benefit from U.S. supply shortages.
- Buy futures contracts tied to LME aluminum, which could climb to $2,575/ton in 2025 as global deficits expand.

Risks and Mitigation Strategies

While the truce offers a tactical entry point, investors must hedge against three critical risks:
1. Tariff Renewals Post-September 2025: The truce ends August 11, 2025, and tensions could reignite.
- Hedge: Diversify into Canadian and European aluminum producers (e.g., Alumina (AWA)) and copper miners in Chile or Peru.
2. Supply Chain Bottlenecks: China’s scrap import disruptions and logistical delays could prolong regional imbalances.
- Hedge: Use currency forwards to protect against USD volatility, as base metal demand correlates with dollar weakness.
3. Green Energy Overcapacity: A sudden slowdown in solar/wind projects could dent copper demand.
- Hedge: Pair long positions in copper ETFs with short exposure to natural gas stocks (e.g., EQT Corp (EQT)), which thrive in energy market downturns.

Conclusion: Act Now, but Stay Nimble

The trade truce has created a 90-day window to capitalize on copper’s scarcity and aluminum’s structural U.S. deficit. With China’s industrial output rebounding and global green energy spending set to hit $2.3 trillion by 2030, base metals are primed for a multi-year rally.

Execute this strategy:
- Deploy 5–7% of your portfolio to copper ETFs and aluminum stocks.
- Use options strategies (e.g., straddles) to profit from volatility spikes around the truce’s August expiration.

The next 90 days will test investors’ nerve—but for those who act decisively now, the rewards in copper and aluminum will far outweigh the risks.

This article is for informational purposes only. Always consult a financial advisor before making investment decisions.