U.S. traders pay higher prices for copper, aluminum and steel than their European counterparts because they are eager to buy metal before President Donald Trump’s tariffs.
Trump said on Sunday that he would impose a 25% tariff on all steel and aluminum imports. He also threatened to charge a fee for imported copper.
The looming tariffs have created an unusual range of transatlantic price gaps, with benchmark New York coming increasingly higher than London prices over $800 per ton, the highest level in at least early 2020. The percentage is just over $10,000.
Tom Price, an analyst at Panmure Liberum, said high U.S. premiums reflect a "distorted" market, reflecting concerns about "supply hunger" rather than more common reasons for demand.
"The United States cannot switch to any other source in the short term," he said. So, there buyers "compete against each other to get the metal."
Daria Efanova, head of research at Sucden Financial, said higher premiums in the U.S. reflect “higher prices are expected to be higher in the future.” “The market is priced before it actually hits.”
Concerns about tariffs circulated in the US aluminum market, closely measured the difference in metal prices in the US and London, known as the Midwest Advanced Premium, rose sharply.
According to JPMorgan, the premium tracks the metal prices of plants in the Midwest, including taxes, transportation and other costs, which is an important indicator as the country relies on imports of aluminum demand for its aluminum demand About 80%. Canada is by far the largest source of refined aluminum in the United States, which is widely used in the industry, from all products to cars and packaging.
Futures for the Midwest premium midwestern settlement next month jumped nearly 10% on Monday, at 30 cents a pound, according to CME Group data.
JPMorgan noted that aluminum stocks could provide a short-term "buffer" to temporarily tighten supply. But Wall Street Bank said that if tariffs are imposed in all countries, the premium could increase by one third to 40 cents, as inventory will be "depleted relatively quickly."
Trump is expected to provide more details on expected tariffs late Monday, including whether there may be any exemptions, as approved by his first term as president. .
After his previous turn to Canadian and Mexican tariffs, analysts say many traders are waiting for clarity, and some traders avoid positions until the policy becomes clearer.
"Uncertainty can be stimulating," said Marex analyst Al Munro. "It creates a lack of investment. You just sit there and you do nothing."
Copper is widely used in electrical equipment such as wiring and electric motors, while aluminum is a lightweight material used in a range of industries, including the automotive and aerospace sectors.
Copper is based on what is called “tax payable” and puts copper in a COMEX warehouse, which means all taxes must be paid before the metal enters the facility. This means that supply is not affected by the levy until the tariffs come into effect.
COMEX's copper stock jumped last year and increased further this year. “People want to prevent the need to pay copper prices plus tariffs,” said William Adams, head of metal research at Fastmarkets base.
Traders are eager to secure access to physical metals before any potential tariffs, which drives premiums for steel and precious metals such as silver and gold in the United States.
Potential tariffs on steel and aluminum could have a particularly significant impact on Canadian aluminum smelters, which provide about 44% of aluminum demand.