Copper's Supply Crunch: Mercuria's LME Withdrawal and the Tariff-Driven Bull Case

The global copper market is at a pivotal inflection point, driven by a confluence of strategic inventory shifts, geopolitical trade policies, and tightening supply fundamentals. Mercuria Energy Group's record $500 million withdrawal of 50,000 tons of copper from the London Metal Exchange (LME) in 2025 has sent shockwaves through the market, signaling a dramatic repositioning by institutional players amid escalating U.S. tariff threats and global inventory fragility. This move, the largest single-day LME cancellation in over a decade, pushed copper prices to a record high of $11,500 per ton, underscoring the market's anticipation of a looming supply crunch according to analysis.

Mercuria's LME Exit: A Harbinger of Structural Tightness

Mercuria's withdrawal was not merely a tactical trade but a strategic signal of deepening supply-side concerns. The trading house's metals head, Kostas Bintas, explicitly warned that buyers outside the U.S. could face critical shortages as early as Q1 2026 according to reports. This move aligns with broader industry positioning for a global copper deficit, as traders and producers race to secure inventories ahead of potential U.S. trade barriers. The LME's geographic concentration risk-where inventories are largely held in China and Russia, which cannot be delivered against COMEX contracts-further exacerbates supply uncertainty according to analysis.

Goldman Sachs analysts have noted that physical traders are already accelerating copper flows into the U.S. during H1 2026, driven by arbitrage opportunities between the LME and COMEX markets. This trend is fueled by the persistent threat of tariffs and the need to lock in supplies before potential price shocks materialize according to reports.

U.S. Tariffs: A Double-Edged Sword for Copper Markets

The U.S. administration's proposed 50% tariffs on semi-finished copper products, announced by President Donald Trump on July 30, 2025, have created a volatile trading environment according to analysis. While the tariffs were initially seen as a bullish catalyst, the exclusion of raw materials like refined copper led to a sharp price correction after an initial surge. This highlights the nuanced impact of trade policy: while tariffs aim to protect domestic manufacturers, they also distort market dynamics by creating artificial arbitrage opportunities and inventory hoarding.

To mitigate the financial burden on domestic producers, the Trump administration has also implemented policies to retain high-quality copper scrap. By 2027, 25% of such scrap must be reserved for domestic use, rising to 40% by 2029 according to analysis. These measures aim to reduce U.S. reliance on foreign sources but also underscore the structural challenges of achieving copper self-sufficiency. The U.S. produces only 5.1% of global mined copper and 3.3% of refined output, necessitating imports for over 50% of its consumption according to research.

Inventory Trends and Supply Disruptions: A Perfect Storm
Global copper inventories remain at historically low levels, with Q3 2025 data showing a 244,900-ton deficit compared to the previous year according to data. This scarcity is compounded by supply-side disruptions, including the force majeure declared at Freeport-McMoRan's Grasberg mine in Indonesia and the temporary shutdown of Ivanhoe Mines' Kamoa-Kakula operation in the Democratic Republic of Congo according to reports. These incidents have pushed global mine disruptions to 6% of supply, well above historical averages.

Meanwhile, U.S. copper inventories have reached their highest levels since 2004, with Goldman Sachs predicting a 50–100% surge in net imports by late 2025 according to forecasts. This inventory build reflects a race to secure supplies ahead of potential tariffs but also highlights the fragility of global supply chains. As Jacob White of Sprott Asset Management notes, copper's structural importance in the energy transition and AI infrastructure will likely support higher prices in the long term according to analysis.

The Long-Term Bull Case: Energy Transition and Structural Imbalances

The International Energy Agency (IEA) has emphasized that green demand for copper is growing at seven times the rate of traditional uses according to analysis. J.P. Morgan Global Research projects a global refined copper deficit of 330,000 metric tons in 2026, driven by persistent supply-side challenges and surging demand from electrification and data centers according to research. These fundamentals, combined with the U.S.'s limited domestic smelting capacity and high production costs, create a compelling bull case for copper.

However, the path to self-sufficiency remains fraught. Developing domestic smelting infrastructure is capital-intensive and time-consuming, with U.S. mines already operating at low ore grades and high costs according to analysis. This structural imbalance ensures that global copper markets will remain vulnerable to geopolitical shocks and supply disruptions for years to come.

Strategic Positioning for Investors

For investors, the current landscape demands a dual focus on near-term tariff-driven volatility and long-term supply-demand imbalances. Mercuria's LME withdrawal and the U.S. inventory surge highlight the importance of strategic positioning in both physical and financial markets. Given the projected deficit in 2026 and the IEA's bullish outlook for green demand, copper prices are likely to remain elevated. J.P. Morgan forecasts an average of $12,075 per ton in 2026, with peaks potentially reaching $12,500 according to forecasts.

Investors should also monitor developments at key mines like Grasberg and Kamoa-Kakula, as well as U.S. policy shifts that could further tighten supply. The interplay between tariffs, inventory dynamics, and energy transition demand creates a compelling case for copper as a strategic asset in a world increasingly defined by resource scarcity.

Conclusion

The confluence of Mercuria's LME withdrawal, U.S. tariff uncertainty, and tightening global inventories has set the stage for a prolonged copper bull market. While short-term volatility is inevitable, the structural underpinnings-driven by energy transition demand and supply-side fragility-suggest that copper prices will remain resilient. For investors, the key lies in balancing tactical trades on tariff-related arbitrage with a long-term bet on the metal's critical role in the global economy.