The 4-Cent Copper Collapse

Are tariffs the answer?

They certainly weren’t 94 years ago when Washington slapped a four-cent tariff on every single pound of imported copper.

Six months later, copper was selling for a shade under five cents.

Just imagine, a tariff worth nearly the entire value of the metal it was taxing.

Naturally, it didn’t work out too well. 

Copper prices hit record lows anyway as the average price that year came in at 6.3 cents a pound, against a long-run average closer to 16 cents going back to the 1840s.

However, it DID do something.

Our copper tariff blew apart the global market. 

Britain quickly moved to wall off its market for copper produced inside the Empire. Meanwhile, France imposed duties that conveniently reserved its own market for Katanga output, and the international producers’ association collapsed as members walked out. 

Soon enough, Britain started building its own refinery so there was no need to depend on anyone else’s.

What we saw took place was a complete realignment of the world’s copper industry. 

Naturally, that four-cent tax stuck around, too, and was still being fought over less than a decade later, domestic miners killed a proposed reduction tied to a trade deal with Chile.

Now we’re seemingly running the same play all over again.

Except this time there’s a catch… did you notice? 

Unfortunately, the veteran members of our investment community here already recognize that copper just hit a new all-time high. 

We see copper’s ticking time bomb and can’t help but see what’s coming next. 

A few days ago, copper prices touched $14,617 per tonne on the London Metal Exchange.

To put a little perspective on that, it was the second record session in a row as prices broke January’s high the previous day. 

Over on the Comex, it’s trading around $6.73 a pound, a stark 49% jump compared to a year ago.

Yet, there’s one part of this story that has some investors scratching their heads. 

You see, there really is no sudden shortage of copper on Earth.

There’s only a shortage of copper outside the United States.

For months now, traders have been shoveling the physical metal into American warehouses ahead of a tariff on refined copper that the White House hasn’t actually announced yet. 

They did it simply on the expectation of one.

That expectation opened a price gap between copper trading in New York and copper trading in London.

That’s why we’re comfortably sitting on ample stock while everybody else is scraping around.

Now look at what the futures curve is telling us…

Backwardation has steepened on both major Western exchanges, which means buyers are paying a premium to get copper delivered right now, rather than waiting for three months. 

We’ve moved beyond speculation, dear reader. 

And you can bet the lesson we learned in 1932 applies directly here. 

Why? Well, because tariffs don’t create copper, nor do they destroy it. 

What they do is redraw the map, turning one global price into several regional ones, and it’s all just a matter of which side of a border you happen to be standing on.

Although it took years to play out back in 1932, this time the market began to front-run it before the ink even existed. 

But for now, let’s look at the other side of this situation. 

You see, some of this move may be distorted…

For whatever reason, if today’s tariff winds up smaller than expected (or doesn’t hit at all!) a lot of that metal in U.S. warehouses will suddenly become ordinary inventory again, and the arbitrage immediately closes. 

The eggheads over a JPMorgan pointed out that copper has historically given back roughly a quarter of its gains during major macro shocks.

But let’s not mistake a policy trade for permanent repricing.

Look, let’s strip the tariff trade out entirely, and we’re still left looking at a supply picture that’s been deteriorating all year.

Remember Grasberg in Indonesia? We saw the second-largest copper mine on the planet run below capacity after a fatal mudslide triggered force majeure. 

Over at the open-pit mine Quebrada Blanca in Chile, production guidance was cut after operational problems.

In fact, Codelco has reported mined output falling short.

But then there’s a bottleneck almost nobody outside the industry knows about.

Sulfuric acid.

Most people don’t realize that roughly 15% of global copper production depends on it. After all, sulfuric acid is imperative to leaching copper out of certain ores.

Back in May, China halted exports in order to protect its own supply, and the ongoing (and never-ending) crisis in the Strait of Hormuz has choked off other sources heading to South America.

Think about that for a second…

A shortage of an industrial chemical is throttling copper production on an entirely different continent.

There’s no sugar-coating it: This is what a supply chain with no slack in it looks like. 

And to be fair, demand really doesn’t care where the warehouses are located. 

Why? Simple… because the world still needs a helluva lot of copper in the coming years. 

We’re talking about the rush to build new data centers, new grid buildouts, any hope of transitioning to renewables will require massive amounts of copper. And all this isn’t to mention the EVs,  transformers, and transmission —  all of which desperately need it. 

So where do we land on all of this, you ask? 

The tariff trade is temporary. 

We’ll ultimately see how this one realigns global markets, but right now it’s not the guesswork over tariffs. 

Rather, it’s the ability to separate the players with genuine production growth from the ones simply riding a distortion that has an expiration date.

And to uncover those investment gems, all you have to do is look in the right spot.