Why did copper escape US tariffs when aluminium did not?

By Pratima Desai

LONDON (Reuters) – A U.S. decision last week to exempt refined copper metal from import duties is in contrast to an earlier move to levy steep duties on aluminum, and highlights the central importance of electricity costs and the lobbying dynamics shaping U.S. policy.

The United States stunned the copper market with its decision to only tax imports of semi-finished products such as wire, tube and sheet. Copper prices on Comex are down more than 20% since the announcement on Wednesday.

Since June, aluminum metal shipped to the U.S., where smelters face higher electricity bills than copper producers, has attracted 50% tariffs.

Taxes on metal production are part of a broader U.S. effort to revive domestic smelting capacity and cut reliance on imports.

U.S. aluminum producer Century Aluminum has been vocal in its support of tariffs that it says are essential to protect what remains of the U.S. aluminum smelting industry.

“Century Aluminum Company applauds President Trump’s unwavering defense of the nation’s domestic production of critical metals by increasing aluminum tariffs to 50%,” the company said in a June release.

The waiver for refined copper reflects its importance to U.S. manufacturing and the influence of the industry, including major producer Freeport-McMoRan, which earlier this year said a global trade war would undermine U.S. copper production.

“A global trade war could result in slower economic growth,” Freeport said in a submission to a U.S. government request for comment on its investigation into copper import tariffs.

“Slower growth in the U.S. or globally would negatively impact copper prices, which could threaten the viability of the domestic copper industry due to its elevated cost structure.”

The case for tariffs on U.S. aluminum imports includes the energy proportion of smelting costs in the United States. Macquarie’s ballpark estimate for energy costs for producing primary aluminum and copper is 50% and 30% respectively.

“There is no economic case for building any greenfield aluminum smelting capacity without substantial intervention. Even then, intervention may not be sufficient,” said Macquarie analyst Marcus Garvey.

Analysts say one major difficulty for potential investors in U.S. aluminum smelting capacity is getting long-term power purchase agreements at competitive prices, when power costs are higher in the U.S. compared with other producing countries such as United Arab Emirates, Bahrain and the world’s biggest producer China.