Global Commodities: Tariff shockwaves churn crude and copper markets
The desk interprets the latest developments in global tariffs and trade negotiations as pivotal factors impacting crude and copper markets, potentially affecting currencies dependent on these commodities. Per the full note from J.P. Morgan, the Trump administration’s warnings regarding penalties for countries like India and China over Russian oil purchases signal heightened tensions in commodity pricing structures. Additionally, the exemption of refined copper cathode from Section 232 duties has introduced unexpected volatility in the copper market, suggesting further price instability ahead as negotiations evolve. As the landscape shifts, traders should closely monitor these developments for signs of broader currency movement, particularly in commodities-sensitive pairs.
What the desk is arguing
The desk contends that the current tariff and trade landscape is driving meaningful fluctuations in commodity prices, particularly for crude oil and copper. According to J.P. Morgan, the administration's threats against India and China for their reliance on Russian oil could lead to substantial price adjustments across the commodities spectrum, particularly impacting local currencies used in these transactions.
Moreover, the recent decision to exempt refined copper cathodes from import duties is set to disrupt the copper market severely. This unexpected policy shift suggests that traders should brace for further volatility, with copper prices potentially facing upward pressure if demand remains robust amidst supply concerns.
Where it sits in our coverage
The current consensus target for commodities-linked currencies suggests a range in the near term, with jpmorgan targeting 1.10 and bofa at 1.04 for March 2026. This reflects a divergence on the impact of tariffs on trade, with J.P. Morgan's outlook positioned towards the upper bound of the consensus range.
How other firms see it
Aligned firms generally view the impact of commodity tariffs as significant, with jpmorgan and others predicting strength in commodity-linked currencies. Conversely, bofa holds a more cautious stance regarding the potential repercussions, suggesting limited upside from current price levels based on their forecasts.
In this dynamic context, monitoring the correlations between commodities like copper and the USD/CAD currency pair will provide valuable insights as trade negotiations progress. Traders focused on these relevant markets should also consider the broader implications of U.S. foreign policy and commodity pricing for their positions.
01Tariff negotiations are causing significant shifts in commodity markets, impacting related currencies.
02The exemption of refined copper from tariffs is likely to create further price volatility in the copper market.
03Traders should be aware of increased tensions affecting oil purchases from Russia by key nations.
04Market participants are advised to remain vigilant regarding how these shifts might influence commodity-linked currency pairs.
Market implications
Traders should focus on the USD/CAD pair as a key indicator of market sentiment following tariff announcements. A breach above 1.10 may signal stronger commodity demand while a retreat could suggest diminishing investor confidence in crude and copper pricing.
Risks to this view
Any thawing in U.S.-China relations could easily alter the current commodity pricing dynamics, reversing expected trends. Additionally, a significant surge in Russian oil exports to alternatives could undermine the sanctions' intended impact, leading to destabilization of recent pricing movements.
Hello and welcome to another episode of At Any Rate. I'm your host, Natasha Kanova, and I head J.P. Morgan Global Commodities Research.
It was a busy week for trade deals and tariff announcements which culminated in the executive order signed late Thursday. Today, we would like to unpack the impact of these announcements on commodities markets, and I'm joined by Greg Shearer, head of our metals research team. Greg, welcome.
Thanks, Natasha. So, Greg, looking at the copper prices, a very busy week this week. Copper prices in America are down about 20% after President Trump's shock decision not to tariff the copper ores and copper metal, instead targeting only processed copper products and finished goods like wire, for example.
What happened? Why such a big change of heart, and why was there such a dramatic price decline? Yeah, I think what really happened was since early July when 50% was thrown around for the Section 232 copper tariff, most everyone across the market expected that to include cathode and then on down into the product like wire, like you mentioned.
Why the change of heart is an interesting question. To some degree, there could have been concerns about the downstream consumers wearing those costs for a long period of time to incentivize additional build-out of supply security in the U.S., and so this is a more transitional approach in the proclamation. They do discuss other recommendations that could come in down the road that would include potentially tariffing cathode, which is what's traded on the COMEX and on LME directly.
So what you basically had was a market that was expecting COMEX cathode to be under this tariff regime. All of a sudden, we get the final details. It's not.
And then you see essentially this collapse in the premium of COMEX over LME. Cutting into the announcement, we were trading anywhere between a 25 to 30% premium in COMEX above LME. Now that subsequently has totally unwound.
So I really think it was just to some degree a complete switch at the end of the post here in terms of what the market was expecting versus what the Trump administration actually delivered. And that really left prices very wrong-footed and they corrected very sharply. Thank you, Greg, for that explanation.
So a few weeks ago, you mentioned that the U.S. has been massively front-loading imports of refined copper. So we are reading about traders bracing for a copper wave to hit LMEs at their booking space. So if you take a look at the LME, copper prices are down about 5%.
So what should we expect now? Yeah, basically that copper that is sitting on COMEX and also off-exchange in the United States, under a tariff regime, that has to essentially stay there because to some degree it's being pulled by the higher COMEX prices. Now, without a tariff on COMEX, what you really have here is an ability for that copper to more directly show up onto LME warehouses in the U.S., primarily New Orleans is the big hub.
And so what's interesting with this is even though the U.S. has basically over-imported 500,000 metric tons of copper year-to-date, that's almost seven months of a normalized import demand, we really don't expect COMEX to trade at a material discount to LME because if it does that, then an ARB opens up where you can take metal from the COMEX and deliver it onto the LME. So to some degree it's at parity or with COMEX slightly below. And once that gets onto the LME, it's a similar dynamic had there been a tariff, right?
We think essentially what it drives is a long, almost six, seven-month de-stocking period where that metal kind of bleeds out and imports fall off quite a lot heading to the U.S. And essentially you just go from a place where you were at, you know, you built essentially six to seven months of your import demand and then you begin to draw down from that. What it could also mean if the price differentials encourage it, it can leave the U.S.
We are not expecting a massive flow. We think that primarily it's just to some degree this metal all of a sudden can more directly show up on the LME right away rather than had there been a tariff and you would not have delivered it to the LME because the LME warehouses in New Orleans actually sit in a free trade zone that, you know, are before that tariff barrier. Thank you.
So overall, do you think that this tariff is going to accomplish the goal of securing domestic supply of copper because this was the main purpose? Yes. So it's the security considerations that we are net importer of copper.
And moreover, I know you were flagging potential for announcements on restrictions of U.S. scrap exports. Did we ultimately see anything like this taking place? Yeah, so I think it's interesting because I think it definitely is going to incentivize U.S. self-sufficiency in copper product production.
I really think it's unclear that it will significantly move the needle in terms of overall U.S. copper input self-sufficiency, which is where the bigger hole is. Right. We see the U.S. needing to essentially import or being in a position of a net deficit in refined copper of around six to seven hundred thousand metric tons, where over the past couple of years they've only really had net imports of around two hundred thousand metric tons in copper products.
So that's a relatively easy hole to fill on the copper product side. But miners, smelters, refiners, including these scraps smelters, they receive the cathode price plus the cathode premium. So from that perspective, that incentive with COMEX trading well above LME, now that's all bled out.
It really, I think, calls into question whether or not you're really going to shift the needle on actual copper input self-sufficiency needed to accomplish these longer term goals of the administration. On the scrap supply quickly, they really they did announce some additional details. So, for instance, 25 percent of high quality copper scrap that's produced in the U.S. needs to be sold in the U.S., as well as a sort of ramping gradual schedule for all copper input material produced in the U.S. needing to be used in the U.S.
Now, to me, those are not actually that significant because the 40 percent of U.S. copper scrap is already used in the U.S. So you're already above that percent. And almost 75 percent of U.S. copper concentrates are already processed domestically.
So to some degree, they also mentioned potential export licensing restrictions or readdressing you know, whether or not this policy is actually working by the by the time we get to June 2026 and maybe down the road considering, you know, outright tariffs on refined copper cathode. Thank you, Greg, for that explanation. So in your view, summing it all up, what does this all mean for your view on LME copper and, you know, over overall for the back half of this year and into 2026?
Yeah, I'd say the way it's structured now, it's in a way very similar to had there been a cathode tariff. You know, from our perspective, what we saw in the first half of 25 was a massive front loading of U.S. imports. That was a magnetism or a magnet that was drawing copper from the rest of the world into the U.S.
Similarly, we saw very, very strong, in our view, front loaded Chinese demand, something between seven to eight percent growth in the first half of 25. Both of those things, in our view, in the second half are still unwinding. Right.
You don't have a cathode tariff, but we still think you are, you know, more than well supplied in U.S. copper inventory. That's going to disincentivize additional imports that that copper that was going to head into the U.S. now goes to other places like Asia and Europe at a time where Chinese demand is softer. And what I'd say on the margin, the way this tariff is structured, more metal can show up on the LME exchange quicker.
We've already seen the curve structure weaken across the LME in anticipation of that. That could then, you know, pressure prices a little bit quicker. So we still remain cautious here on a second half 25 unwind, thinking that you could see copper prices bleeding lower down towards the low 9000s before we see a stability there and would think about maybe changing our tact and playing for a rebound on still a constrained copper market as it looks to 2026 and beyond.
So that's what's been happening in copper. Now, maybe turning to you, Natasha, there were a lot of announcements on oil this week, including, you know, pressure on China and India in regards to their purchases of Russian oil. What's been happening?
Well, thank you, Greg. Yes, you're absolutely correct. A lot of announcements this week.
So, number one, the Trump administration seems to be expanding trade discussions with China and India to encompass a broad, a broader range of topics, including both countries, ongoing purchases of Russian oil. So essentially what they're doing is that they have moved away from trade to geopolitics. So President Trump also announced this week on Monday, then he repeated this on Tuesday, that the that he would shorten the deadline set for Russia to end its war in Ukraine from the initial 50 days to 10 days, clearly underscoring his growing frustration with President Putin's lack of action towards ending the conflict.
So what that means. So first of all, as part of this trade negotiation, as we know that the US this week was negotiating with India and with China, President Trump has threatened secondary sanctions and penalties on nations that buy Russian oil. He views such transactions as tacit support for Russia, helping to bolster its economy and undermine sanctions.
So this approach in conjunction with European sanctions could impact major buyers, such, for example, India and China. Those are the two biggest ones. They account for about 66 percent of all the oil that Russia sells.
So together they purchase almost 4 million barrels per day of crude, but also smaller buyers of Russian crude and oil products, for example, like Brazil, South Korea, Turkey. It's not exactly clear what actions Russia would face if it does not end fighting by August 8th. It's actually, it's in exactly a week, the deadline.
But Trump earlier this month threatened to impose about 100 percent secondary tariffs on countries that continue purchasing Russian oil. So what are the numbers involved in that? So, of course, you know, India and China, the ones that were watching very, very closely.
So interestingly, China has indicated that it will maintain its buying patterns. But at the same time, our understanding is that China is also sending signals that it might quietly reduce its imports in exchange, for example, for its restrictions on tech exports. In the case of India, India did signal compliance with European and US secondary sanctions.
So we know that India ordered its oil refiners to draw up plans for non-Russian crude, very similarly to what happened in early 2022 at the start of the Russian-Ukraine war. This week we are reading that several Indian state-owned refiners have holded all purchases of Russian crude. We hear that some private refiners are also considering reductions.
We know that ships carrying fuel from the India's Nayara refinery, which is backed by Russian Rosneft, they have difficulties discharging their oil. So it does appear that local Indian processors are now distancing themselves from the refinery and we're hearing that they actually have to cut down their refining runs. So what are the numbers that we're looking at?
So combined China and India, the two countries that explicitly right now are mentioned by China, they potentially could put up to 2.75 million barrels per day of Russian seaborne oil exports at risk. So the numbers are much higher in terms of what they are buying, but our understanding is that the pipeline volume, so we know that there is a big pipeline, the ESPO pipeline that exports Russian crude to China, this is the one that is not going to be touched, similar to the Druzhba pipeline. So those are about one million barrels per day of volumes on long-term contracts.
This has to be removed. So in general, it's about, if we round it up, about three million barrels per day of Russian crude that is potentially at risk. Oh, wow.
So this is some serious volume there. How much of that oil do you think Russia can reroute? But that's exactly the point, Greg, we're having, we're trying to make.
So the volumes are large, yes. So even if we say, let's take a look only at India without China, though China is sending signals that, listen, if you relax some of the restrictions on the tech exports, we could put some pressure on, especially state-owned refiners. So, but in general, if we look at the numbers, what Russia can easily reroute and divert, but again, by easily we mean given time, yes, Russia needs time to be able to do that.
The numbers are showing that Russia would be able to divert only about 0.8 million barrels out of those seaborne exports. So the way we approach that, we actually went refinery by refinery by refinery in the world. So we took almost like 240 refiners.
We looked at their technical capacity. So to be able to process Russian grades, like Urals, for example, which is the most popular one, you have to have a very high tech refinery. So, and, you know, when you look just, you know, at tech capabilities and after that, you start looking and say, okay, geopolitically, would those countries be able to do that?
Then you look at the distance and all this transportation routes and what exactly is achievable. So the number is 0.8. So out of this 2.75, 0.8, they would be able to divert the countries that we're watching very closely, Egypt, Malaysia, Vietnam, Brunei and South Africa.
So interestingly enough, Greg, when you take a look into China and what China can do, because a lot of the questions we're receiving is that can actually China just take more Russian oil? Yes. For example, if India says, okay, I'm not buying anymore.
And that's about 1.7, 1.8 million barrels per day. Can China just absorb all of that? So the numbers are showing that if you look at the Chinese blending capacity, so they can absorb additional 1 million barrels per day of Russian crude.
But what is also interestingly, if they do that, that would raise Russia's share of China's total imports to about 25%. So China has been extremely careful and we have data going back 20 years, 21 years to be exact. So China never surpassed, like one single country never surpassed the 20% threshold in the last 20 years.
So we saw a couple of times Saudi Arabia get to this 20%, but never one single country went over that barrier. So Russia was additional million barrels per day would be at about 25% of China's import basket. We do not believe that China will actually agree to that.
Okay. And so, so there is still some potential here for a shortfall in Russian exports. I mean, what about other market players?
Does OPEC have sufficient spare capacity to offset that? What about U.S. shale? Could we see a U.S. shale increase on the production side?
Yes. So when we look at all the numbers and so how much Russia can reroute and, you know, what exactly could be, you know, what is doable. So this leaves about 1.6 at the minimum to 2.75 for the maximum of Russian oil exports that are potentially exposed to secondary sanctions.
So starting with the U.S. shale, no, the answer is very simple. No. Yes.
We see massive drop in the rigs this year. So A, it's not just in time type of a production. It takes time.
It takes a particular price signal for that to come over. So in general, very, in a very short time, especially if the sanctions kick in indeed on August 8th, this is not doable at all. So in the case of United States shale, the answer is no, that cannot be done.
In the case of OPEC, what is very important is that we need to differentiate between surge capacity and sustainable OPEC spare capacity. So sustainable spare capacity, that means it's something that could be maintained for months. Yes.
In the case of surge, it's one off and, you know, once you are done. So when we take a look at the countries within OPEC outside of Russia, what we're concluding is that most of the countries are already at maximum capacity. So for example, Kazakhstan, Iraq, those big guys, big producers cannot produce more than what they're producing at the moment.
So the only two countries that we're watching closely are Saudi Arabia and the UAE. In the case of additional surge spare capacity, Saudi Arabia can deliver about 1.6 million barrels per day. In the case of UAE, it's between 500 and 600 KBD.
If we talk about sustainable capacity, something that needs to be maintained beyond one month, the numbers are substantially lower. So that's about 1.1 from Saudi. In the case of the UAE, it's about 200.
So the short answer is no, it's not doable. We don't think they will do that considering their relationship with Russia. Russia clearly plays a very big part in the OPEC plus.
So it was, you know, a partnership that was established in 2016. And I do believe that both UAE and Saudi Arabia really, you know, really put a lot of weight into that relationship. And so because of that, we don't think that they will go ahead with that.
Okay. So I guess overall, you know, pretty sizable risk here to keep monitoring. But if we kind of assume and take a step back and assume no action is taken, what's the overall view for oil prices over the second half of 2025?
Yes. So to sum it all up, we believe that the Trump administration, very much like its predecessors, will find that sanctioning oil exports from the world's second largest exporter is impossible without triggering a significant increase in oil prices. So we try to stress our pricing model and just see what exactly the price reaction would be.
So indeed, if the market just assumes that some volumes from India will be removed from the market, the price easily, at least that's what the model shows, will go into, you know, 85 and higher. So, you know, very, very quick type of reaction. So if the numbers are much higher, so then the price can easily go into the hundreds.
Yes. So that's the market because it's not linear. It's exponential type of reaction from the market.
So because of that, we maintain our view that President Trump will refrain from enforcing sanctions that would lead to this prolonged reduction in Russian supply, primarily due to the political and economic damage that the sustained oil price rally could inflict. So we're watching very closely the inflation prints today, you know, the employment numbers came softer than expected. So in general, we do believe is that the list that the Trump administration needs right now, it's higher oil prices.
So hence, it does appear that they're, you know, the comfort zone is low, low 60s to mid 60s type of a price environment, which is interestingly, is exactly our price forecast. So if we take a look at our fair value model, so the fair value for July was 67. So today we're trading at 71, 72.
So that's about $5 higher. So if nothing is done, yes, if everybody refrains from acting. And again, you know, another point to keep in mind is that Russia also has leverage.
Yes. So and the leverage that Russia might use, it's the CPC pipeline. That's the ones that moves Kazakh oil.
It is controlled with the major control share is owned by Russia. And so because of that, Russia can actually close the pipeline. And that's about 1.5 1.6 million barrels per day.
They tried to do this couple of times. So you know, clearly, they were testing how that was going to work. So this is a doable scenario as well.
And you know, very plausible scenario as well. So if both sides refrain and do absolutely nothing, the fair value shows that by the end of this year, fair value for Brent will be about $61, 60 to $61, which is our price forecast. Yes, that's, you know, that's how we model.
And then for 2026, we're looking at average price of about $60 for Brent price. Thanks, Natasha. Thank you, Greg, for joining me today.
Clearly a lot of headline news that we have to be watching next week will be extremely important week, especially for energy markets considering the 10 day timeline expires on August 8. So again, Greg, thank you for joining me. Thank you all to listening to the Commodities Edition at JPMorgan's At Any Rate podcast.
We look forward to continue the conversation next week. This communication is provided for information purposes only. Please refer to JPMorgan research reports related to its content for more information including important disclosures. 2025 JPMorgan Chase and Company All Rights Reserved.