Copper's Divide: How to Play the COMEX-LME Split with FCX and SCCO

The U.S. copper tariffs set to take effect on August 1, 2025, are creating a historic bifurcation in global copper markets. A 50% tariff on imports has already triggered a scramble to stockpile metal in the U.S., driving a massive price differential between the New York Commodity Exchange (COMEX) and the London Metal Exchange (LME). This structural divergence creates a compelling investment opportunity: long Freeport-McMoRan (FCX), the largest U.S.-based copper producer with direct exposure to COMEX-linked contracts, and short Southern Copper (SCCO), which faces headwinds from its reliance on LME-exposed supply chains. Meanwhile, non-COMEX-exposed firms—those tied to global pricing—will suffer as inventory shortages and backwardation intensify.

The Market Bifurcation: COMEX vs. LME

The tariffs have created a two-tiered market. U.S. buyers now pay a $5,000/ton premium for COMEX-deliverable copper compared to global prices, driven by logistical bottlenecks and backwardation (where spot prices exceed futures prices). By June 2025, the LME-COMEX spread had widened to a record $400/ton, with U.S. prices hitting $15,000/ton by August projections. This divergence is structural: COMEX contracts are tied to U.S. domestic pricing, while LME prices reflect global supply chains now strained by the tariff-induced redistribution of inventories.

Freeport-McMoRan (FCX): The COMEX Play

FCX's dominance in U.S. copper production and its direct exposure to COMEX contracts position it to capture the tariff-driven premium. The company's Copper Mountain mine in Nevada and Morenci in Arizona supply the bulk of domestic output, ensuring FCX can lock in profits as COMEX prices surge. Additionally, FCX's long-dated sales contracts are often indexed to COMEX prices, shielding it from global price declines.

Southern Copper (SCCO): The Mexico-U.S. Arbitrage… and Its Limits

SCCO's Mexican mines (e.g., Cananea and La Caridad) are geographically positioned to exploit the U.S. tariff arbitrage, as shipments from Mexico avoid the 50% duty. However, this advantage is fleeting. While SCCO can redirect output to the U.S. pre-tariff, its long-term exposure to LME pricing—where global inventories are collapsing—creates a vulnerability. As LME prices drop due to oversupply in non-U.S. markets, SCCO's margins will compress unless it can fully shift sales to COMEX-linked contracts.

Why Non-COMEX Exposed Firms Are at Risk

Firms like First Quantum Minerals (FMG) or Antofagasta (ANTO), which rely on global LME pricing, face a perfect storm. Their earnings are tied to collapsing LME prices, while their ability to shift supply to the U.S. is hampered by logistics (e.g., port congestion in Chile and Peru) and the race to meet August 1 deadlines. These companies will also struggle with counterparty risk as buyers in Asia/Europe face shortages and price spikes.

The Trade: Long FCX, Short SCCO

• Long FCX: Buy on dips below $25/share, targeting $35–$40 by year-end. The stock has already risen 30% in 2025 as the tariff premium builds, but the rally is far from over. COMEX's dominance as a price-setter for U.S. industrial buyers ensures sustained demand.
• Short SCCO: Enter at $35/share, aiming for $25–$28 by Q4. While SCCO benefits from near-term arbitrage, its long-term exposure to LME pricing and logistical complexity (e.g., Mexican rail capacity limits) will erode margins as global copper oversupply grows.

Risks and Catalysts

• Tariff Delays/Exemptions: A last-minute carve-out for Mexico or Canada could disrupt the COMEX premium. Monitor U.S. Trade Representative statements closely.
• Inventory Depletion: If LME inventories fall below 500,000 tons, backwardation could deepen, boosting FCX further.
• Backwardation Collapse: A sudden surge in U.S. supply (e.g., post-tariff oversupply) could narrow spreads, but this seems unlikely given permitting delays for new U.S. mines.

Conclusion

The U.S. copper tariffs have created a once-in-a-decade structural opportunity. Investors should capitalize on the COMEX-LME divergence by longing FCX and shorting SCCO, while avoiding non-COMEX-exposed miners. The trade is a bet on logistics (FCX's U.S. mines vs. SCCO's Mexican-LME arbitrage limits) and the inelastic demand for copper in U.S. infrastructure and EV markets. As the August 1 deadline looms, the price gap will only widen—making this a high-conviction, high-reward play.