Tariff Shift Puts COMEX-LME Copper Spread in Focus

Key Moments

Policy Shifts Turn Copper Into a Tariff-Sensitive Trade

Societe Generale analysts Michael Haigh and Jeremy Sellem contend that copper has effectively become a policy-driven asset as U.S. Section 232 tariffs transform the pricing relationship between COMEX copper and London Metal Exchange (LME) copper. They point to a sustainable broadening in the COMEX premium, the reappearance of physical arbitrage opportunities, and a spread that tends to revert toward a long-run COMEX advantage of approximately $33 per metric ton.

According to the analysts, their framework also allows them to infer market-implied probabilities of future U.S. tariffs on refined copper, using observed pricing dynamics across futures maturities.

Tariffs Reshape COMEX-LME Copper Arbitrage

“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.”

The authors explain that their Copper Cross-Asset (CCA) analysis focuses on how this arbitrage mechanism operates, the ways in which the tariff framework has distorted it, and what current spread behavior signals about how policy risk is incorporated into both physical and futures copper markets.

“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.”

Mean-Reverting Spread and COMEX Premium Structure

The analysts treat the COMEX-LME price differential as a classic mean-reverting time series. Over a 28-year period, they observe a modest persistent bias in favor of a COMEX premium, averaging around +$33 per metric ton.

“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.”

This no-arbitrage band, driven by logistics, warranting, and financing costs, is cited as the reason physical flows typically move from LME to COMEX when dislocations arise.

Market-Implied Tariff Probabilities From the Spread

The study uses the observed COMEX premium above a fully delivered LME cost, rather than the raw exchange spread alone, to infer the market’s expectations for future U.S. refined copper tariffs.

“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.”

The analysts conclude that the modified arbitrage structure between COMEX and LME copper has become a key gauge of how traders and hedgers are pricing U.S. policy risk into both physical and derivatives markets.