China Tariff May Spur Copper Rerouting But No Big Deal for Mines

2018-08-03 23:00:00.0 GMT
By Danielle Bochove, Joe Deaux and Susanne Barton (Bloomberg) -- China’s plan to slap tariffs on U.S. shipments of metals, including copper, doesn’t pose a big threat to American producers or global prices, although it may create headaches for traders.

The proposed metal duties are part of a $60 billion escalation in a trade war between the two largest economies announced Friday. Investors took the latest measure in their stride, with mining companies’ shares gaining. Analysts said the tariffs will have minimal impact on global supply and demand, and the largest U.S. copper producer shrugged off the news. Freeport-McMoRan Inc. doesn’t see any “material direct impact,” spokesman Eric Kinneberg said by email. “From time to time, we sell small quantities of concentrates on a spot basis to China but this is very limited.’’ Freeport’s copper concentrate shipments to China come from mines in Peru and Indonesia, he said. The company’s shares gained along with the price of copper.

Copper ore, concentrate and refined cathode from the U.S.will be taxed 25 percent. Nickel, zinc, some precious metals, lithium carbonate and steel products are also on the tariff lists that were disclosed by China on Friday. “Copper is a global market that depends much less on regional trade flows and therefore tariffs in any one region should not have a material impact on the market,” Chris LaFemina, an analyst at Jefferies LLC, said by telephone from New York.

Even if American concentrate is turned away from Chinese smelters because of the tariffs, it could probably be rerouted, Chris Mancini, an analyst at Gabelli & Co, said by email. “Concentrate can typically be sent to various smelters depending on its quality.” The question would be whether trading firms that have off- take agreements with miners would assume responsibility for redirecting metal to buyers elsewhere, Mercury Resources LLC Chief Executive Officer Anton Posner said by telephone. “Also, if I’m a mining company or trader that has been moving concentrates consistently to Asia, if there’s a freeze of those shipments, my problems may be a shortfall of payments under contract with the railroads where they may not meet the tonnage minimums,” he said.

Rio Tinto Group’s Kennecott is also a major U.S. copper operation, although it sells predominantly to North American buyers. Rio’s shares rose in New York. Similarly, none of the cathode Freeport produces in the U.S. is sold in China. A key question is if the tariffs apply to metal shipped directly from the U.S., or if they would also affect shipments that enter China through intermediary countries, Jeremy Sussman, an analyst at Clarksons Platou, said by phone. “It’s too early to speculate that it’s anything other than regulated to mines in the U.S., in which case there shouldn’t be much of an impact,” Sussman said in an emailed response to questions.

China imports about 120,000 metric tons of copper in concentrates from the U.S., which is about 3 percent of China’s total imports, according to Vivienne Lloyd, an analyst at Macquarie Group in London. It’s a larger impact on the U.S., which exported a total of about 237,000 tons in 2017, according to the World Bureau of Metal Statistics. U.S. Census Bureau data show only 70,000 tons shipped directly to China.

“There’s a small amount of trade flows between China and the U.S., but it doesn’t seem to be particularly important with the Chinese market,” Lloyd said. “They probably wouldn’t struggle to find it from an alternate seller.” Tariffs on cathode is more difficult to assess because refined metals tends to move in and out of global warehouses.

“Cathode could have a modest impact on U.S. based companies,” Sussman said. “It really would be too early to signal which ones and ultimately the market is big enough that there would be workarounds and any impact would be temporary.”

--With assistance from Yanping Li, Jack Farchy and Mark Burton.

To contact the reporters on this story: Danielle Bochove in Toronto at; Joe Deaux in New York at; Susanne Barton in New York at To contact the editors responsible for this story: James Attwood at Steven Frank