Can the US Retain its Hold on its Current Stockpile of Copper?

In February last year, President Trump ordered a national security investigation into imports of copper into the U.S. The probe would allow the administration to decide whether to levy import tariffs on the refined metal or not. Since then, traders have been shipping copper into America in anticipation that once tariffs are imposed, they would make a killing selling the metal they had preemptively stockpiled in the country.

That frontloading has led to copper stockpiles in the country rising to more than 1.10 million tons. Traders are still shipping even more metal into the U.S. as Trump keeps markets guessing whether or not tariffs will be announced.

The current stocks of copper in CME warehouses are now more or less a strategic reserve for the country. The only difference is that this stockpile isn’t owned by the government. Private market players own this metal. While the current uncertainty is keeping more copper flowing into the country, one wonders whether the U.S. can hold onto all this metal and keep it within its borders.

Currently, only China has a larger strategic reserve of copper than what is currently stored in U.S. warehouses. One option for Trump to keep all this metal, and possibly more, on U.S. soil is to remain ambiguous about the tariff direction. Markets have already built a tariff premium into copper prices, and maintaining the status quo could keep more copper flowing into the U.S.

However, such a strategy may not work indefinitely. Market forces can change at any time and cause copper to flow into other markets, such as Shanghai and London. For example, if a supply shock caused a massive deficit on global markets, the price of copper in London and Shanghai would rise so much that the premium traders were enjoying in the U.S. would be exceeded by prices elsewhere.

If that happened, the stockpiles in America would easily be shipped out of the country, leaving the U.S. with barely enough to provide a cushion of several months’ supply.

A possible solution would be for the federal administration to buy the metal and keep it as a reserve. This would shift its ownership from private hands to government hands. However, the challenge with this approach is that the government has a long list of critical metals, such as rare earths, and all those would compete for the funds allocated to shoring up the strategic metal reserves of the country.

For now, traders and investors are taking long positions on copper because of the gains that can be made as unprecedented shipments of copper into America cause shortages elsewhere and drive up prices. How long this can last will be closely watched by firms like Collective Mining Ltd. (NYSE American: CNL) (TSX: CNL) that are looking to develop new mines of this critical metal.

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