Silence on Section 232: Reading Between the Lines

Copper Weekly is back for episode five — and this one was meant to be the big tariff reveal. Mike and Albert deliberately delayed recording to Wednesday July 1st to capture the long-awaited US Section 232 announcement on copper. The result? Silence. No announcement, no tariff, no clarity. So instead, the pair use the occasion to step back and examine the deeper logic behind US copper protectionism.

In this episode:

The Non-Announcement — June 30th came and went with nothing. Albert explains why this outcome was not entirely a surprise, whether the market simply misread the deadline, and why an announcement could still land in the coming days, potentially timed around the July 4th weekend for maximum political effect.

Reading the Arbitrage and Forward Curve — Despite the silence, the CME-LME arbitrage has not collapsed and the CME remains in a strong contango. Albert unpacks what that signals about the market's continued expectation of a tariff further down the line.

Why Copper? The Case for Protection — The US is a major producer of mined copper and scrap, yet runs a significant deficit in refined cathode. Albert breaks down this raw-materials-surplus, refined-metal-deficit dynamic and explains exactly what gap a cathode tariff would be trying to close.

Stick vs Carrot — Would a tariff actually incentivise new smelter capacity? Albert makes the case that the multi-year, multi-billion-dollar commitment of building a smelter sits awkwardly against a policy that may not outlast the current administration, and points to alternatives like Argentina's RIGI framework, tax breaks and low-cost loans.

Where Do Imports Actually Come From? — US statements reference China, yet America barely imports any Chinese copper. Albert explores the disconnect between the national security narrative and the reality that most US copper comes from allies like Chile, Canada and Mexico.

The Scrap Question — With the US exporting large volumes of scrap to China, could export controls be the next lever? Albert explains why domestic processing capacity, not export policy, is the real constraint.

The Week Ahead — Will we finally hear something? Albert offers his honest gut call: if an announcement comes, he expects it to confirm a cathode tariff, but concedes there is a real chance of continued silence.

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Transcript

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SPEAKER_01 0:01

Hello and welcome to Copper Weekly, a benchmark podcast. I'm Michael Finch, Head of Strategic Initiatives, and with me we have Albert Mackenzie, Copper Analyst and Market Reporter, where each week we'll unpack what really moved the copper market and what to watch in the coming days ahead. Along the way, we'll be joined by a number of guest speakers. So kick back, relax, and enjoy this quick download on Everything Copper. Hello and welcome back to Copper Weekly, a benchmark podcast. Thanks for joining us for what is now episode number five. And thanks to everyone that tuned in last week. And if you are enjoying the show, please don't forget to follow and rate the podcast. Albert, welcome. How are you doing?

SPEAKER_02 0:36

I'm doing well, thanks. I'm doing well. How about yourself?

SPEAKER_01 0:40

Yeah, yeah, doing doing okay, doing okay. A little disappointed we didn't hear any news regarding the the US uh import tariff situation. So I think let you know let's just cut straight to the chase. We actually delayed the recording of this podcast to what is now Wednesday, the first of July, just to try and capture um and allow time for that announcement to digest the information, to hopefully you know shed some light uh for our listeners on exactly what is happening uh and what the impacts might be regarding uh US import tariffs. But we heard absolutely nothing yesterday, um either overnight or or yesterday evening. So, Albert, straight off the bat, what is going on, in your opinion? Um I think it's fair to say the whole market was was waiting on this announcement, a lot of uh press, a lot of you know, I don't think maybe excitement's the right word, but anticipation. But we heard nothing. Why?

SPEAKER_02 1:29

Yeah, I mean there was a lot of I mean, if you've followed any of our coverage, you'll see that we covered it a lot, but also, you know, the big news organizations were also covering it quite a lot, and there was definitely an expectation that we would could hear something uh yesterday. Um I would say for the last sort of month or so, I'd sort of wondered whether we might might just get to the day and nothing happened. Um and we had actually that seemed to be one of the the sort of outcomes that lots of people expected. Um so it's not it's it's not caught us completely by surprise that nothing has happened. Um I think I think we put it as sort of in internally in my head it was like a sort of 15 or 20% chance that he just said nothing. Um and that is that is what's happened. Um I guess one thing I would say is reading, I I have now reread the um, and you know, you and I were speaking about this, I've now reread the the announcement from last year, and it doesn't necessarily explicitly say that June 30th would see a public announcement, more that there would be, you know, the conclusion of internal sort of governmental discussions within the US. So maybe that's the sort of misunderstanding we as a market have have taken. Um but I do think everyone, yeah, I think I think people thought yesterday was something important, uh, and it turned out not to be.

SPEAKER_01 2:53

No, time time went and passed and and nothing. Like you said, maybe it's a technicality, maybe we misread the situation as is a collective. Um is it is there potential that we it could be the case we hear something just in the coming days or next week? Um like you said, i if uh the June 30th deadline was purely about the recommendation being passed on to President Trump, um could it just be the case that it makes its way into the mainstream media in the in the following days?

SPEAKER_02 3:18

Yeah, I think that's I think that's likely. Um I don't think, you know, because there hasn't been an announcement that that's it, we're not having a cathode tariff job done. Um, you know, the Trump administration does, you know, issue statements on stuff like copper tariffs. It has issued a number of updates since last year um on you know little aspects of of the 232 tariff. Um so I don't see why it will stop doing that. And I I checked the arbitrage this morning and it's not collapsed down as as potentially you might expect it to to do if if um people read this as a signal that nothing uh would be coming. Um so I d I think there's still a chance for a update to come. I guess the longer it takes for an update to come, the more uh uncertainty and and and the more I guess the less people will expect it. You know, if we're if in six months' time we still don't have an update or something like that, then I guess pa people will start thinking maybe there just won't be one. Um one thing someone pointed out to me, which um maybe the uh the image created by Trump issuing a tariff around the July 4th weekend might be part of it. You know, if if if we hit see an announcement on um on on their Independence Day, you know, sort of saying, oh, and also we've we'll get independence from minerals as well, kind of thing, that we'll, you know, that it's part of that narrative and part of American exceptionalism and stuff like that. Um so a few people I've spoken to sort of have have said maybe the update will come in the next few days and be tied into that sort of thing. Um it is worth noting the US is uh busy at the moment. The certainly the administration is. Um there's you know peace talks with Iran, there's a 250th anniversary, uh the World Cup, among other things. Um maybe there's focus elsewhere. Though to be honest, I actually thought that because of some things going on in the administration and and some challenges, certainly, you know, if you look at Iran or um some other things going on in the US at the moment, that maybe maybe I thought that the the tariff could be seen as a good news story or a or a or a political win for Trump, so I thought maybe it would come out this week. But um you know, I think there's a strong possibility we don't hear anything for a while.

SPEAKER_01 5:42

I I think that's perhaps maybe the most likely scenario right now, but it's an interesting comment about a perhaps coming to the media with a bit of a splash on on the July 4th weekend and and uh yeah, making uh a song and a dance uh out of it all. Uh and I wouldn't necessarily be surprised by that uh either. Um so I guess we're gonna wait and see. You mentioned the arbitrage. Is there anything else that you're looking at or digging into when it comes to that? Because it it it maybe collapse isn't the right word, but it it sort of tightened fairly significantly um from what was it around a 650 tons um between the CME LME a few weeks ago to where was it yesterday, about 170, somewhere around there?

SPEAKER_02 6:23

Yeah.

SPEAKER_01 6:24

Is it is it do you do you think that it's just a natural fluctuation, or or generally do you think maybe more people in the market started to realise maybe nothing is gonna happen?

SPEAKER_02 6:32

Well, I did wonder that this morning, actually. Um the arbitrage is actually, you know, I mean, it's moved a little bit this morning. It's it's sometimes hard to tell before um the US is up. Um But it it does seem to be slightly broader this morning. It has collapsed in the in the last few weeks. It was at five, six hundred dollars a ton, and it it sort of fell down to two hundred. And in retrospect, that might have been a sign that either as we were approaching the deadline, people started to you know, I saw more and more people say maybe there's nothing's gonna happen. Um but also maybe you know people maybe knew something's a wrong term, but you know, expected that they'd already know by then or or sort of had an inkling that that nothing was gonna happen or knew something wasn't gonna happen. If you look at the arbitrage, it hasn't changed people's expectation of a tariff. It's kind of where it was before. Um and and that will be an interesting one to look at. The longer it goes on, the longer we don't know, you know, you might expect to start to see it come down again.

SPEAKER_01 7:32

What about the forward curve, Albert, then? Is there anything we can read into that as well?

SPEAKER_02 7:37

Yeah, so the CME is still in a relatively strong cantango, um which you know could be taken certainly to indicate that people expect something to bolster um CME prices going forward, and and that could be a tariff coming in. Um it's something we've we've mentioned before, but the the CME is a uh duty-included price. So if there was a 15% tariff, um you'd expect that to be reflected in the CME price. And so on the forward curve, you know, when you see it in such a a strong Contango, maybe that's indicating that people still expect that. People still expect uh a tariff to come in. You know, obviously the CME can be in Contango for other reasons, um, you know, whether it's positivity about future demand or stuff like that. But you know, I think to me this is indicating, especially when you look at the the LME forward curve, which continues to be um a lot less uh it's basically flat really, um, that kind of indicates that people are expecting the uh CME to push up above above the LME in the longer term. So you know the market's not gone, oh, there will be no tariff. It's still pricing in some of that uncertainty and and and pricing it in in a sort of uh by pushing the price up on CME.

SPEAKER_01 8:54

Yeah. And like you said, when the US opens today, we might see a little bit more uh reaction from the market as well, and over the the coming days. So um certainly something to to keep an eye out for. Um I mean the intention of of this podcast today was to be a bit of a deep dive on the tariffs again to unpack what happened. Um we don't have that announcement, but I still think we can use this as an opportunity to you know maybe look back and provide some sort of context around this this wider notion of US protectionism when it comes to copper. So, Albert, just for for perhaps those less familiar um with the terrorism rationale behind this Section 252 investigation, can you provide that sort of background context to why the US are looking at these measures? I mean, broadly speaking, just how reliant is the US on copper imports then and and across the various different products. Obviously, we've got refined on one end and scrap on the other, perhaps. But um, just tell us a little bit about sort of the material flow and US dependence on on imports and why you know maybe these uh import measures are um a way of bolstering perhaps uh the US um position when it comes to copper production.

SPEAKER_02 10:01

Yeah, I would say firstly, there there are good reasons for the US to be considering some sort of protection or help for the copper industry. Firstly, I would say, however, the US administration likes tariffs. Donald Trump has, through both his statements and actions, made it quite clear he likes a tariff. Now, one of the reasons why 232 is a good one to use is it's you know they're all above board and legal. You know, I um I think you know everyone remembers Liberation Day a few years ago, those tariffs were sort of ruled uh unconstitutional illegal, right? 232 tariffs are not considered in that in that sort of um legal judgment, so are actually permissible and allowed. So, first of all, it is a good way of generating tax revenue potentially and and and generating money for the US. Um it is also clearly ingrained in in Trump's policies and political beliefs that uh tariffing imports is beneficial for the US broadly. Now, whether that's reflected by um sort of logical arguments on the other side is is broadly accepted by him that that's a good thing. So I think that's that's sort of you know maybe my first point. However, you know, if you look at the US copper situation, they are a very large producer of uh copper concentrate, mine copper. Um they are also a very, very large producer of copper scrap. And they actually don't process enough of that to be self-sufficient on copper cathode. That's sort of interesting because if you look at them in terms of raw materials, the raw materials they generate, they are in a surplus of copper. But if you look at it from a refined angle, they're actually in a fairly significant deficit and they have to import a large amount of copper cathode. If you were to bring in a copper cathode tariff, that is the issue that you're dealing with. It would have given the US smelters basically a benefit compared to the rest of the world of a sort of fifteen percent uh price slapped on top of what they can get when they sell their copper on. And in theory, that should have you know boosted investment in the space.

SPEAKER_01 12:24

Um In theory, right? In theory. Yeah. Would it because it's tariffs typically could be considered as you know, if you're looking at carrot and sticks, incentives or or you know, punitive measures, you know, it's certainly more of a a stick than it is uh a carrot. Would it an alternative, I'm not you know, perhaps asking you to say whether it's better or not, but would an alternative have been to incentivize that midstream, the the refining um and the smelting of domestically in the US more meaningfully rather than you know putting these protectionist measures in directly look to incentivize that gap because it is a considerable gap, right? And I'm I'm looking at a chart here and maybe it's a fraction out of date, but you're right, in terms of what the US imports in terms of refined cathode, it's you know, let's say ballpark 800 kilotons or whatever it is, and then you look at what is exported, this is on a net basis, what is exported in terms of uh conks, it's you know, for maybe 500, and scrap it's it's even more than that. So on a net basis, like you said, there's there's more than enough copper units in the system, it's just perhaps not being um refined or or smelted in the in the US. And that's the gap, that's the bottleneck, right?

SPEAKER_02 13:33

Yeah, and and I I agree, I think there's I think one of the problems with tariffs, especially as they are a Trump policy, you know, they're a thing that he likes. And if you were to invest a couple of billion dollars, um probably even more, and a lot of time, you know, it's a lot of work and capital, a lot of things to do, a lot of hoops to jump through, to open a new smelter. Doing it on the basis that the current president, who may not be, well, who technically can't be president in uh two years' time or three years' time, um, has put in a policy that he thinks will support that industry, it's not a huge amount of certainty. You know, if that tariff was to get overturned, um, bearing in mind also, you know, there's lots of hoots to jump through, you have to go and ask uh, you know, your shareholders, your board, your, you know, your lenders, all these all these people have to agree that this investment is a good idea. And you're sort of saying, Yeah, but you know, we've got a tariff now. So say a tariff came in. By the time any smelter was built in the US, if you started deciding if you decided on the basis of tariff, if a tariff came in today, you said, let's build a smelter, it would not be built by the time the Trump presidency ended. And therefore you're you're basing the investment decision on a 15%, you know, say it was a 15% tariff, a 15% bonus that might not exist by the time you're operational.

SPEAKER_01 14:55

Yeah, it's not guaranteed to be bipartisan, is it?

SPEAKER_02 14:57

So No, not at all. Um and you know, there's a chance that the Democrats would would leave some aspect of it in. I mean, certainly if the tariff being talked about was smaller, they might, you know, if it was a 3% tariff, they might leave it in because, you know, why not kind of thing. Um but at 15% is quite large. You know, it's going into a lot of industries in the US, they might see it as inflationary and this sort of thing. Um but you know, there are other ways to incentivize investment. You know, you could offer uh tax breaks for you know a set period of time, you could offer interest-free loans, you know, this sort of thing that actually you can sign into contracts and can be there for a while. And actually you see it in um if you look at Argentina, they're trying to incentivize some new mine capacity, and they've got this thing called a a riggy system, which is basically a guarantee that means you know, even if this government loses power and and stuff like that, you know, this is a really long-term investment, sign this and and we'll guarantee this for for longer than than this administration. A tariff doesn't do that. A tariff is you know US administration-based. So it might not necessarily incentivize the type of investment the US would want, and it might not necessarily therefore plug that gap. It might do it briefly for a short period of time. You might see um not you know, not cover the entire gap, but you might see more material being processed locally if you know the two smelters that do exist in the US can boost utilization rates because you know, why not? Why not try and make as much copper as you can while the arbitrage is where it is? Um but it doesn't necessarily, to me, seem like the best long-term alternative. It's certainly if it's not bipartisan. And I would say actually another thing in in terms of addressing whether this policy of tariffs makes a huge amount of sense is looking at where US copper imports come from. Now, if you read statements from the US government, they explicitly, in some statements on copper about the 232 investigation, mention China. The US does not import Chinese copper. Last year it imported a little bit of copper from China, but it was actually re-exports of CME registered material like Chilean brand material. The US mainly imports copper from Chile, from Canada. Uh it used to import quite a lot from Mexico, though. We've seen some imports from Australia, from Japan. As far as the US has allies, these are allies. And if you're looking at it from a sort of reliance on people you don't want to be reliant on, these are good trading partners. Um I think that's one thing that always confuses me about the the narrative around the US being reliant on imports. Obviously, you know, the US doesn't want to be exporting so much raw material and importing so much cathode. Um but in terms of it being a sort of genuine national security risk, I I don't necessarily see that. Um the the one argument that I've heard to counter that is that from an external perspective, I view Canada and Chile and Mexico as allies of the US. But potentially the US administration doesn't see things in in in in that way and doesn't want to be reliant on anyone.

SPEAKER_01 18:10

That that's probably the key point, not reliant on anyone, which you know is is understandable in in today's climate and it's a common theme and it's you know, undoing the globalization of the last 10-15 years, it's about localization, or you know, we we use a term even two years ago, friendshoring, but it looks like we've even moved more central than that and bringing supply um domestically and ensuring that that risk is completely eliminated, not relying on any alternative sources. So, you know, perhaps there's a an element of that. Obviously, one thing we've not touched on, and it's probably for another uh recording, is is the general inflationary nature of tariffs as well, so maybe that's something to consider in the future. But you mentioned obviously China. The US does export a lot of scrap to China, though. Export controls specifically pertaining to scrap, is that a another potential option or lever the US administration could pull?

SPEAKER_02 19:00

Yeah, it's I mean the uh export restrictions on scrap and concentrates are mentioned in the announcement from last year. Um they are relatively minor restrictions. Um one of them is also slightly poorly phrased. The scrap bit sort of it references high-grade copper scrap, but doesn't give a definition of what that is. Um so it's sort of hard to know exactly what what what it classifies under under that. Um but the the restrictions they put on are quite uh it's essentially that they can't export too much scrap and too much concentrate, but both concentrate and scrap exports are now are currently well within those bounds. Um and and will likely continue to be. It's a sort of uh it's a relatively lax limiter. I think one thing that's interesting, because last year my my view was you know uh China actually when the US and China are having a lot of tariffs back and forth, um scrap exports from the US to China slowed quite significantly. Um and then they picked up when when some of that situation resolved. But I sort of thought, well, you know, the CME, LME arbitrage is so high, why aren't these scrappies selling stuff in in in the US? You know, they're getting, you know, in theory, if you're selling against the CME price versus against the LME price or the Shiffy price, you're getting a lot better deal. Um but the US just didn't have the capacity to process that material. And so what actually you saw was you know the the sort of discounts on scrap against the CME being quite significant. You know, it was realistically being sold closer to LME prices, um which was you know quite an interesting uh interesting trend. Yeah, scrap export controls are often something that that's talked about, but you know, the US needs to invest in a uh in some sort of scrap smelting capacity. There's there's a good facility built by Arubus recently um in in Richmond. Uh though it doesn't currently have a tank house, I don't believe there's any public statement saying that they will have a tank house, which essentially means it can't make cathode. Um it can only make blister or sort of pretty refined copper, not you know the the cathode that that that is more broadly used.

SPEAKER_00 21:26

Um that would go back to Europe for for turning into cathode.

SPEAKER_02 21:29

Aaron Ross Powell Yeah, so actually I think initially that was the plan. I um I think that was sort of Arubus's plan was that the US has a large amount of scrap, make this facility and and send it back to Europe to be turned into cathode. I I believe. I I don't know if that's sort of publicly stated. I think that was the interpretation lots of people gave to it. Um but actually if you look at anode and blister exports last year, it appears that actually it did stay in the US um uh and and get used there, uh potentially because of that arbitrage meant that it was it was you know there were benefits to keeping that semi-refined copper in the US.

SPEAKER_01 22:00

Okay, thanks for for all your comments and thoughts on the tariff Albert and what is a tariff special, should we call it? Uh I mean let's look to it's uh it's a non-special, really. Uh let's wrap this up. Um I'm gonna hold your feet to the fire here and say, you know, before we record the podcast next week, are we gonna hear anything on this? And if so, what is your what's your gut feel, your your base case take uh in terms of of tariffs?

SPEAKER_02 22:28

My gut feeling would be that if we do hear something, it will be that there will be a CAFO tariff. My view is is that the Trump administration likes tariffs. Uh Howard Lutnick has in the past referenced the fact that the US administration intends to use the levers available to them to tariff imports, um, explicitly referencing 232 in that statement. And this was just after the nation's nation-focused tariffs got overturned. So the US administration has said they they want this in in some regard. So I think there's a chance that they that that they do it. Um I also think there's a chance we don't hear. I think maybe that's maybe that's um maybe that's my guess is that if we hear something it will be tariffs, but we might not hear anything. Um and and I can't wait for next week when it's we hear something and it's not tariffs, and I the the of the two options I gave, both were wrong.

SPEAKER_01 23:24

Or we're sat here again talking about a non-announcement. So we will save that for next week. So let's draw this session, uh this recording to a close now. So thank you once again, Albert. We look forward to hearing from you. Next week, maybe, maybe not. We might have some further clarity on the US uh import tariff situation. So uh we can hope at least. But for now, that's all for this episode of Benchmarks Copper Weekly. Thank you very much for listening. Thank you. If you found the show useful, follow us on Spotify so you don't miss next week's episode. For deeper analysis and data on copper supply, demand and prices, visit benchmarkminerals.com forward slash copper. Thanks for listening and join us next week as we break down the latest moves in the copper market. Bye for now.