The Silver Lining on U.S. Tariffs May Be Copper

The U.S. just imposed a 100% tariff on imported electric vehicle (EV) batteries from China. This dark economic cloud may have a silver lining for copper mining stocks.

The White House’s move aims to protect U.S. manufacturing and bolster domestic battery production. While this may have the negative consequence of increasing costs for EVs’ end consumers, investors in the production of battery minerals outside of China, particularly copper, may benefit from a surge in demand for the mineral. This often leads to increases in the stock prices of companies involved in production. For copper mining investors, this is basic economics that may play out in their favor.

Why Copper Could Soar

As mentioned, the U.S. tariff on Chinese EV batteries is likely to lead to more domestic battery production. This shift will require a robust supply chain, placing copper producers in North and South America, among others, in a prime position to benefit.

In addition to the tariffs being a possible tailwind for copper producers, there is already rampant demand for the semi-precious metal. Again, the main driver is the EV revolution which was already driving up demand. Now, with the potential for even more domestic production, this trend is likely to accelerate.

The existing demand is evident because copper prices are already on the rise. In fact, as of May 14th, copper futures were nearing a new record price per pound, fueled in part by uncertainty surrounding the battery components in EVs.

This alignment of factors suggests a potential boom for copper, making it an attractive investment opportunity.

Investing in Copper Through ETFs

For investors seeking exposure to the copper market, copper exchange-traded funds (ETFs) offer convenience, diversification, and a cost-effective option. These ETFs are largely correlated with the price of copper, allowing you to participate in a broad range of producers, be diversified enough to participate in any moves, and be liquid enough to trade in and out with relative ease.

Several ETFs are closely linked to the value of copper, with the largest ones being the Global X Copper Miners ETF (NYSE:COPX) and the Sprott Copper Miners ETF (NYSE:COPP).

These ETFs offer investors exposure to the copper mining sector, focusing on companies involved in copper production, development, and exploration. The Global X Copper Miners ETF is highlighted for its significant assets under management, while the Sprott Copper Miners ETF is noted for being the first U.S.-listed ETF that provides pure-play exposure to large, mid, and small-cap copper miners, emphasizing their importance in the energy transition.

Using the TipRanks Comparison Tool, we can compare COPX and COPP across various parameters, such as their expense ratio and year-to-date performance and TipRanks Smart Score.

Key Takeaway

The U.S. tariff on Chinese EV batteries may have a dark and a bright side. While the White House’s act may have an immediate effect on increasing costs, it could be a blessing for copper miners.

With domestic EV production likely to benefit from tariffs and the trend toward other electricity-intensive infrastructure changes, it’s no wonder copper demand and prices are surging. Investors that find this compelling can consider Copper mining ETFs, offering a diversified and accessible way to gain exposure to the copper market.