By Lisa Reisman and Belinda Fuller
A 15-year trade dispute between Airbus (OTCPK:EADSF) and Boeing (NYSE:BA) could send copper prices skyrocketing, with an even greater impact on U.S. manufacturers than the Section 232 tariffs had on steel and aluminum. MetalMiner has long covered this current dispute between Airbus and Boeing.
Last year, the U.S. claimed victory in the dispute, essentially setting the groundwork for retaliatory tariffs against European imports. Though it took some time to go through an appeals process, Bloomberg has reported that tariffs appear imminent and, as a result, the U.S. copper industry has been galvanized into action.
The tariffs apply to a wide range of products, including hundreds of items unrelated to airplane parts, including cheese, whiskey and wine.
However, the following copper alloys and products could face a 100% - that is not a typo - duty if coming from the E.U.:
- 7407.10.50: Refined copper, bars and rods
- 7407.21.90: Copper-zinc base alloys (brass), bars and rods nesoi, not having a rectangular cross-section
- 7409.11.50: Refined copper, plates, sheets and strip, in coils, with a thickness over 0.15 mm but less than 5 mm
- 7409.21.00: Copper-zinc base alloys (brass), plates, sheets and strip, in coils.
- 7409.29.00: Copper-zinc base alloys (brass), plates, sheets and strip, not in coils.
- 7409.31.50: Copper-tin base alloys (bronze), plates, sheets and strip, in coils, with a thickness o/0.15 mm but less than 5 mm and a width of 500 mm or more
- 7409.31.90: Copper-tin base alloys (bronze), plates, sheets and strip, in coils, w/thickness o/0.15 mm but less than 5 mm and a width of less than 500 mm
- 7409.40.00: Copper-nickel base alloys (cupro-nickel) or copper-nickel-zinc base alloys (nickel silver), plates, sheets and strip, w/thickness o/0.15 mm.
- 7409.90.90: Copper alloys (o/than brass/bronze/cupro-nickel/nickel silver), plates, sheets and strip, w/thickness o/0.15mm but less than/5 mm and width less 500 mm
- 7410.11.00: Refined copper, foil, w/thickness of 0.15 mm or less, not backed
These alloys cover 16% of the U.S. copper market, according to the Precision Metal Forming Association, and go into a broad range of industries, including electronics, automotive, aerospace, agribusiness, defense and home appliances.
In fact, the Bureau of Economic Analysis estimates these sectors represent approximately $1.7 trillion in U.S. output annually, according to testimony delivered Aug. 5 by ABC Metals President Dan Kendall.
In the Section 232 steel and aluminum exclusion requests, some companies received exemptions where no domestic supply exists. That scenario certainly applies to some copper alloys - nobody produces the C101, C102, C103 up to C110 (oxygen-free copper) grades, nor does the U.S. cast C500 series (phosphor bronze).
The copper industry, unlike the steel and aluminum industries, has already heavily consolidated. As Kendall explained at the hearing with regard to a monopoly in copper supply:
"On July 16th, Wieland Metals, headquartered in Germany, completed its acquisition of Global Brass & Copper, the last remaining US-owned brass and copper strip manufacturer. Prior to that, on May 28, Olin Brass, a division of GBC (which was about to be acquired by Wieland), petitioned the USTR for inclusion of these metals for tariff protection that are sourced in Europe."
Wieland has petitioned to essentially create a virtual U.S. monopoly of more than 23 copper alloys. Furthermore, Wieland has no quoted ABC Metals. (Wieland did ship 10,000 pounds, though certainly not enough to fill an order!)
Trump can't be blamed for this set of tariffs. However, this 301 WTO case has the power to wreak havoc throughout many manufacturing supply chains.
OEM manufacturers will act quickly to reconfigure their supply chains to continue to access copper products competitively. They will likely move offshore for electronic production. In addition, the remaining domestic copper suppliers will raise prices because they can.
Product substitution in copper remains limited compared to other metals, such as aluminum and steel, particularly due to the tough mechanical and chemical performance criteria demanded by consumers such as Aptiv (NYSE:APTV), Lear (NYSE:LEA), Molex, TE (Tyco Electronics), Ford (NYSE:F), Chrysler (NYSE:FCAU), Denso (OTCPK:DNZOF), etc.; few suppliers can meet such demands.
MetalMiner gives these tariffs a 50% probability based on the USTR recommendation to the administration, expected in September.
Domestic suppliers have already raised prices.
We remind readers, however, that nothing kills high prices like high prices.
Monopoly Pricing On The Horizon?
The Copper Monthly Metals Index (MMI) moved sideways in July, maintaining its value of 74.
While prices in the index lost some value, the declines were modest.
LME copper prices moved firmly sideways since early June. In July, the price hit a brief low of $5,823/mt and a brief high of $6,067/mt, trading within a band between $5,850/mt and $6,050/mt during most of the month.
Source: MetalMiner analysis of London Metal Exchange ((LME) and FastMarkets
Copper tends to be a beacon for industrial metals trading, typically experiencing more pricing volatility due to macroeconomic conditions than other metals.
With the trade uncertainty around the U.S.-China relationship following the U.S. announcement of more tariffs, the copper price reacted and dropped in early August.
What This Means For Industrial Buyers
Trade conditions deteriorated somewhat in early August on the heels of the latest U.S. announcement of tariffs on an additional $300 billion in Chinese goods. As a beacon industrial metal, copper prices reacted by dropping.
Meanwhile, the U.S. implementation of 301 WTO tariffs of up to 100% on European copper product imports may result in serious ramifications for copper prices and related industrial organization needs.
In light of the shifting trade environment, industrial buyers will need to keep on their toes in August and as we move into the annual planning season for industrial metals buying.
It's important for buying organizations to understand how to react to copper price movements.
Actual Copper Prices And Trends
Copper prices across the index weakened slightly this month.
The Indian copper cash price dropped 1.7% to $6.42 per kilogram.
Korean copper strip dropped 1.4% to $8.17 per kilogram.
U.S. prices in the index decreased in the range of 1.6%-1.7%, offsetting last month's gains of a similar magnitude. U.S. producer copper grade 110 decreased to $3.43 per pound, grade 102 priced at $3.62 per pound and grade 122 at $3.43 per pound.
Chinese prices decreased in the range of 0.3%-1.7%. China's copper wire price dropped by 1.3% to $6,802/mt. The primary cash price dropped 1.7% to $6,779/mt. Copper bar dropped by 1.7% to $6,767/mt.
Chinese scrap copper #2 decreased by 0.3% to $5,577/mt.
The Japanese primary cash price decreased by 0.4% to $6,138/mt.
The LME primary 3-month price decreased by 0.5%, falling to $5,950/mt.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.