Copper and critical metals. A critical moment.

Trump has announced a 50% tariff on copper

Amongst the flurry of Executive Orders, Trump has sought to boost US mining and deep-sea extraction, particularly of copper and critical rare earth minerals. This also helps explain his interest in ‘acquiring’ Greenland. The problem for the US is that most of the world’s rare earth minerals are in China, its rival super-power. These minerals are critical to much of America’s defence equipment and military might. Trump has recently announced a 50% tariff on copper to ‘bring copper production home.’

The war in Ukraine has exposed critical shortages of traditional metals such as copper, which is essential for ammunition. This is due to disruptions in supply chains and increased demand from the conflict itself. A US 155mm standard artillery round is believed to contain up to 1Kg of copper. Shell production, which doubled last year, is forecast to double again this year, both to supply Ukraine and replenish America’s strategic supplies. Furthermore, bullets and shells are often made of brass, an alloy of copper and zinc.

The surge in military demand for copper comes amid the simultaneous growth of renewable energy and AI. Electrical grids, solar panels and datacentres have all added to the growing demand for copper. It is estimated that higher defence spending could boost demand for copper by an extra 500,000 tonnes, equivalent to about 1.5% of global annual demand.

The price of copper has already spiked following Trump’s tariff announcement; copper now costs more in the US than elsewhere. US copper futures have recently traded at a record premium over LME prices, about 25% above the prevailing price in London. Analysts are warning of a hit to businesses and the wider American economy as a result.

Many of the large global miners have been focusing on maximising cash flow and using this to fund mergers, dividend growth, and share buybacks. With the surge in demand for copper from renewables and the military sectors, leading miners including BHP and Glencore are now racing to bring new copper mines into production. Unfortunately, major capex projects like these, take time. The race is also on to discover and develop new rare earth mineral deposits. Meanwhile, the West’s defence industry is vulnerable to China’s carefully developed stranglehold on rare earth minerals and processing. While the US and China appear closer to some form of trade deal, China is unlikely to release rare earth minerals that are destined ultimately for the US defence sector.

Meanwhile, Chinese acquisitions of overseas mining companies have hit their highest level in more than a decade as they race to secure the raw materials that underpin the global economy in the face of rising geopolitical tension. Copper and rare earth are the must have metals!

What have we been watching?

The US market hit a fresh record helped by growing optimism as more trade deals were reached ahead of Trump’s deadline of August 1st. The initial catalyst was the US-Japan trade deal followed by news of a similar US-EU trade deal over the weekend. This saw European equities rally and UK equities also hit a new high. 

The US-Japan trade deal will see a 15% tariff which is below the 25% tariff that Trump had most recently threatened. It is believed that Japan’s car makers will also face a 15% tariff rather than the higher sector tariffs. Trump also said that ‘Japan will invest $550bn in the US, which will receive 90% of the profits’ albeit the details of how that will work are not immediately clear.

The US-EU trade deal mirrors the structure of the US-Japan deal. The agreement includes a 15% tariff on cars, excludes pharmaceuticals, but maintains the existing 50% tariffs on steel and aluminium. In a significant gesture, the EU has pledged to import $750bn of US energy and invest $600bn in the US economy as well as purchasing ‘vast quantities’ of American military equipment. Additionally, the EU has committed to opening its markets to US goods at zero tariffs.

Talks are due to get underway between the US and China this week. US Treasury Secretary Scott Bessant said ‘we’re in a good place with China and it looks as if the 90-day tariff reduction which expires on August 12th could be rolled forward by up to a further 90 days.

Another factor supporting global equities and bonds has been a growing confidence that Federal Reserve (Fed) Chair Jerome Powell was unlikely to be fired after the peak fears last week. The US 30-year Treasury yield moved back below 5% having touched an intra-day peak of 5.07% last week. However, Trump has continued his attacks on Powell including an open disagreement between the two live on camera about the cost of the renovation works at the Fed building which was a remarkable spectacle to watch!

 

Whilst UK shares hit record highs, there was more bad news for Chancellor Rachel Reeves as public sector borrowing (PSBR) hit £20.7bn in June, well ahead of market expectations. Interest payments on debt continued to ramp up and the PSBR was the second worst figure on record! There was further disappointing news as the ‘flash’ UK PMI business activity indicator for July dropped to 51.0.

Within this figure, manufacturing recovered to 50.0 but this was countered by a decline in service sector activity to 51.2. Meanwhile, grocery prices increased by 5.2% in the four-weeks to mid-July. The UK and India agreed a new trade deal worth £6bn. While not on the scale of Trump’s trade deals, it will nonetheless, see tariffs on UK goods exported to India cut from 15% to 3%. India currently accounts for less than 2% of the UK’s exports.

 

The European Central Bank (ECB) paused its most aggressive interest rate cutting campaign since the global financial crisis, leaving its key deposit rate unchanged at 2% in June, after eight cuts. The ECB highlighted the uncertainty arising from Trump trade disputes albeit the US and Eu have subsequently agreed a trade deal.

 

It was a week of huge headlines in Japan. First, the trade deal with the US, then press rumours that Japan’s PM Ishiba has decided to step down and might announce his resignation soon and finally a weak bond auction that saw Japanese government bond yields climb to the highest level since 2008.

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Brent oil edged back to $68 on the back of the trade deal announcements.

Finally, what a state to get in! According to the Resolution Foundation’s analysis of the recent government Spending Review 2025, the British state is slowly turning into the National Health State. It points out that by the end of 2028-29, the NHS will account for half of all day-to-day public services controlled by Westminster -up from a third in 2009-10. Is this level of spending sustainable? The recent OBR ‘Fiscal Risks and Sustainability’ report would suggest not!

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