Just when the copper code had been cracked by traders (or so they thought), President Donald Trump‘s tariff surprise slammed copper prices, and in turn copper ETFs, into a loss spiral, resulting in a path of losses, confusion, and a storage facility full of losing wagers.
The Shock Tariff Move
In a shocking move this week, Trump rolled out a 50% tariff on semi-finished copper products. But here’s the twist: refined copper was exempt. That seemingly minor carve-out caused a massive shock wave through global copper markets. Why? Because traders had front-loaded U.S. imports of refined copper, anticipating broader tariffs. The tariff they received? A curveball that punished their positioning.
Copper Prices Collapse, CPER Gets Crushed
With refined copper exempt, the demand for domestic alternatives evaporated almost overnight. U.S. copper futures on the Comex exchange plummeted over 17%, wiping out the premium they held over London's benchmark. The United States Copper Index Fund (NYSE:CPER), which tracks front-month Comex copper futures, bore the brunt, falling more than 19% in the after-hours trading session on Wednesday.
Prior to the announcement, importers had amassed refined copper anticipating across-the-board hostile tariffs on all types of the metal. The plan? Take advantage of tariff-driven price premiums. But with refined copper exempted, warehouses are now storing overpriced copper that’s losing value at a fast clip. Experts estimate hundreds of millions in losses as traders rush to sell overstock at depressed prices.
The ETF Fallout
Outside of CPER, several other copper-exposed ETFs caught some pain:
Global X Copper Miners ETF (NYSE:COPX): Off about 3% as big holdings such as Freeport-McMoRan (NYSE:FCX) and Hudbay Minerals (NYSE:HBM) declined.
SPDR S&P Metals & Mining ETF (NYSE:XME): Dropped due to overall weakness in U.S.-based metal producers.
iShares MSCI Global Metals & Mining Producers ETF (BATS:PICK): Lost ground on the back of global mining names with U.S. export exposure.
Arbitrage Dreams Dashed
Traders had been making money from arbitrage between LME prices and Comex for months. The U.S. premium, constructed on anticipated tariffs, disappeared almost overnight, gutting arbitrage and turning bullish positions into losers. Funds tracking the LME, insulated to some extent from U.S. politics, now appear reasonably stable by comparison.
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