Copper Clash: Tariffs, Trade Shifts and Opportunity

I'm Thalia Hayden with ETF Guide. So glad you're here. Copper has been in the news lately as President Trump ordered tariffs of up to 50% on some imports of the metal. But what does this mean for copper prices, supply and demand, and copper miners? To help us understand this new environment, we have Steve Schaall, director of ETF product management at Sprat Asset Management. Steve, welcome to the program. Great to see you. It's great to be back. Thanks for having me.

All right, let's begin with copper. It has been in the news quite a bit this year. What should investors know about the recently announced copper tariffs?

Yeah, well, the first thing the announcement did is that it provided much needed clarity to the copper markets. But as we've learned throughout much of this year, things can change very quickly. The main takeaway is that the input materials, so think of things like ore and cathodes, are not subject to the tariffs. So that's very significant because most of the international trade in copper will be exempt. There is however a 50% tariff on semi-finish copper products, so things like copper pipes and wiring. With the announcement behind us, we're hoping that the markets can move to more of the fundamentals and get away from some of the recent noise that we've had. But with that being said, as we've seen, news flow is changing quickly and it's something that we continue to monitor. And how have copper markets reacted since the tariff announcement?

Yeah, great question. So, for most of this year, copper prices have pretty much been dislocated. If you look at the US, it was commanding a significant premium to prices over LME traded copper. LME traded copper tends to be that international benchmark price. So what we saw was an arbitrage trade where people were able to buy copper overseas and they were looking to ship that into the United States ahead of any expected tariffs. After the proclamation of the tariffs went public about a week and a half ago, what we saw was that the US prices collapsed much closer to being in line with LME copper. They went from over 30% premium down to 1% pretty much within a few hours.

In recent months, what we saw was a lot of copper was being directed to the United States ahead of these tariffs, and that caused US inventories to reach their highest point in 21 years. At the same time, we saw people drawing down LME copper inventories, they were off about 50%. But since these tariffs have been announced, we've actually started to see those LME stockpiles increasing again. So, we're starting to see some more of that balance come back to the market.

Now, you mentioned long-term fundamentals. What's the supply and demand outlook for copper?

Yeah, so most estimates will put the market into a supply deficit beginning sometime in late 2025 out through 2027. That tends to be the window that most are pointing to. A lot can change. The copper market tends to have a lot of supply disruptions. On average, it's about 5% a year that we see from supply disruptions. And Cadelo, which is the Chilean state producer of copper, actually has their largest mine, which suffered a partial collapse about a week and a half ago. So, they're still working to bring that online. That's just one example that we see as disruptions happen.

Typically, when you look at the broader copper market, about every 25 years or so, as economies are advancing, we see there's about a doubling for copper demand. And we're starting to see that now as you have developing countries are increasing their standard of living. Developed countries are having technological advancements which includes things like AI and electrification. So that's really providing this backdrop of increased demand but we are seeing some headwinds as it relates to supplying more copper. First one of those would be declining ore grades as much the easy to access copper has already been mined out. So that means miners have to extend the life of existing mines and move more dirt in order to bring more out ore out of the ground.

We're also seeing that the long lead times to bring a new mine on and operational from once it's discovered on average in the United States it can take about 29 years from discovery to production. We see large producing countries like Canada where it can take about 27 years. Chile which is the largest producer in the world they actually take about 22 years. So significant lead times we think that relaxing the permitting process could go a long way to help bring new supply on online. But we do expect to see as we move through the coming years a structural supply deficit out into the foreseeable future once we get past these next couple of years.

Makes sense. And there are growing concerns of an economic slowdown in the United States. What could be the implications on copper from a slowing economy? Well, copper's traditionally been viewed as a barometer of global economic health. That's given it the nickname Dr. Copper throughout the last several decades. When you start looking at where we've come over the last couple years, there's been significant concerns about China's slowing real estate market that's weighed on copper over the last several years. So I think any slowdown that could potentially happen in the United States would also weigh on copper markets.

There's a notable difference now versus previous economic cycles and that is there's a lot more support for structural demand for copper as it relates to AI and electrification and the energy transition. This support wasn't there 5 or 10 years ago or in last economic cycles where copper was really impacted. So we do think that will provide somewhat of a floor on copper prices and should be supportive of higher copper prices going forward. And the hope would be that it would help weather any potential slowdown the US or other global economies as well.

Great timely input. And how can investors access the copper opportunity?

Well, we think the easiest way for most investors would be to access copper miners through an ETF. Copper miners are already operating at healthy margins as we've seen considerable price improvement in copper over the last several years. And the ETF gives you some advantages over single stock selection because you do get diversification. You're not just tied to one minor. Also, it could be difficult for some investors to access foreign markets by investing in an ETF. The ETF can hold domestic and foreign equities. So it is an easy well- diversified way for investors access the copper market.

The SPRA copper miners ETF, ticker COP, that actually provides pure play exposure to copper miners. And it also has about a 5% allocation of physical silver via close-end fund that the ETF actually holds. And then we also have the SPAT Junior Copper Miners ETF, ticker COPJ. Again, this is a pure play strategy focusing on junior copper miners, which tend to be exploration and development companies. And in our view we define a pure play company as a company that has at least 50% of its revenue or assets tied to mining developing or exploring for copper.

When we look at these two ETFs COP is the only pure play all cap copper ETF in the US market. It also is the only ETF that provides physical copper exposure and then COPJ is the only copper junior copper ETF rather offered to US investors as well. Steve, say someone's new to copper investing. What should they know as they do their research?

I think there's two things that come to mind. I would say first that investing in when you do invest in an ETF, if that is the route you choose to go, it's important to look past the name of the fund. I mentioned that our strategies are pure play. We think that's really important particularly in the copper markets. Because if you look at the 10 largest copper producers, only three of them are publicly traded and majority copper miners. So a lot of those producers might have less than 10% of their revenue that is coming from mining copper. So if you were to invest in a company that has a strategy that has copper in the name it has a broader mandate you could have a lot of unintended exposure that you're getting access to. So it really waters down that copper exposure.

Finally when you start looking at at copper markets and a lot of commodity markets they can go through periods of volatility. So I think it's very important to look at the fundamentals and take a longer term view before entering those positions and just understand and be comfortable with the volatility you might have in the short term while understanding the long-term view of the market.

Great stuff Steve. Unfortunately we are out of time but thank you so much for your timely insights and keep up the great work.

Thanks for having me. See you next time. Of course. And that does it for today's episode of Metals in Motion. Thank you so much for joining us. If you enjoyed the show, please let us know in that comment section below by hitting that like button. And to learn more about the critical materials and ETF we discussed on today's program, be sure to visit spraetfs.com. And if you missed previous episodes of Metalsin Motion, just hit that Metalsin Motion playlist to catch up. I'm Thalia Hayden with ETF guide. Thanks for watching and we'll see you next time.