How a copper spread trade is pricing Trump tariff odds

One specialist arbitrage trade on a metal commodity is evolving into a real-time gauge of U.S. tariff risk.

Copper futures on the COMEX hit a record high of almost $6.90 per pound last week, capping a rally that has stretched more than a year. The spread between COMEX prices and London Metal Exchange futures was historically a tool for physical traders, banks, hedge funds producers and consumers to profit from temporary price differences or hedge exposure across the two markets. The gap typically widened on Chinese demand shocks or supply disruption in South America.

That old playbook has been rewritten by the Section 232 tariff investigation into refined copper, Societe Generale analysts said. Investors are now using the COMEX premium as a proxy for the likelihood of new duties.

The U.S. already charges a 50% levy on imports of semi-finished copper products and certain other copper-based goods. The Commerce Department has recommended a phased universal tariff of 15% on refined copper from Jan. 1, 2027 climbing to 30% on Jan. 1, 2028.

"The COMEX-LME spread has increasingly become a gauge of U.S. tariff expectations, with a wider premium signaling greater perceived tariff risk and continuing to pull metal into the U.S.," Ewa Manthey, commodities strategist at ING, told CNBC by email.

The U.S. imported more than 200,000 metric tons of copper in July – its highest level in 12 years.

SocGen analysts led by Mike Haigh, head of FIC and commodity research, said U.S. policymakers have become increasingly concerned about the country's reliance on imported refined copper as AI infrastructure, grid modernization and defense spending drive up global demand. The Section 232 probe reflects a broader objective in "securing access to a material seen as critical to both economic growth and national security," he said.

To translate the spread into tariff odds SocGen modelled the cost of moving LME-grade copper from European warehouses to the U.S. East Coast. They compared that all-in delivered price with COMEX futures. The current COMEX premium over fully delivered LME metal implies a 14.6% likelihood of the Commerce Secretary's recommended phased universal tariff of 15% by January 2027, the analysts said. That probability rises to 37% for a 30% duty by January 2028.

Natalie Scott-Gray, senior metals demand strategist at StoneX, called the overdue Section 232 decision the "single biggest catalyst" facing the copper market. Comprehensive tariffs would squeeze supply outside the U.S., while no tariffs would unwind the COMEX-LME arbitrage, she said in a recent market commentary.

Manthey said a wider premium remains supportive for copper prices near term "particularly as mine supply remains tight and competition for available metal between the U.S. and China intensifies."

"We remain constructive on copper, although tariff uncertainty means volatility is likely to stay elevated," she added.