Copper: Tariff-driven arbitrage reshapes COMEX-LME spread – Societe Generale

Societe Generale analysts Michael Haigh and Jeremy Sellem argue that Copper has shifted into a policy-driven trade as Section 232 tariffs reshape the COMEX-LME arbitrage. They highlight a structurally wider COMEX premium, renewed physical arbitrage windows, and a mean-reverting spread with a roughly $33/mt long-run bias. Their model also extracts market-implied probabilities for future US refined Copper tariffs.

Tariffs redefine COMEX-LME copper dynamics

"Copper has become a policy trade: the arbitrage between COMEX copper in the US and LME copper in the rest of the world has moved from a technical curiosity to a central question for anyone trading or hedging the metal, and the reason is simple: tariffs. Since 2025, the US has built an increasingly aggressive Section 232 regime around copper, imposing a 50% duty on semi-finished and derivative copper products while, for now, deferring any tariff on refined cathode itself but tying that decision to a Commerce review that could phase in duties of 15% in 2027 and 30% in 2028."

"This CCA examines that arbitrage: how it functions, why the tariff overlay has distorted it, and what its behaviour reveals about how policy risk is priced into physical and futures copper markets. Because both contracts are physically deliverable, metal flows from the cheaper venue to the more expensive one, and since the LME runs a far larger warehouse network than COMEX, its inventory levels have historically sat about 65% higher."

"On price action, we treat the spread as a textbook mean-reverting series, modestly biased toward a COMEX premium of about +$33/mt over 28 years, with dislocations that decay fast (a half-life near 3.5 days) and a no-arbitrage band, set by freight, warranting and financing costs, that explains why the trade runs LME to COMEX."

"We use this framework to back out the market-implied probability of future copper tariffs: since tariff expectations sit in the premium of COMEX over the fully delivered LME CIF cost rather than in the raw exchange spread, we strip out the historical non-tariff basis and treat the residual as the expected tariff contribution. Applying our formulae across matched futures maturities, we estimate the market is pricing about a 14.6% chance of a 15% tariff by January 2027 and a 37% chance of a 30% tariff by January 2028."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)