Copper rally won't benefit institutional portfolios: expert

The rally in Comex copper prices has triggered a deep divide among institutional investors, despite it outperforming other metals like silver and gold.

For some, it’s a diversification play with real asset exposure and inflation hedging benefits. For others, the opportunity looks like a narrow arbitrage trade that only benefits a few companies, with Freeport-McMoRan at the center. At least, that’s the belief espoused by John Qian, a portfolio manager at T. Rowe Price.

“There’s only one real company that benefits from the copper tariff in the US, which is Freeport,” he said. “Every other company globally almost always gets the LME price. It doesn’t really change much.”

Despite the potential windfall, “Freeport’s moved more or less in line with many of its peers,” argued Qian, suggesting the market hasn’t fully priced in the upside.

While US President Donald Trump's tariffs may have triggered some short-term shifts in copper flow from the London Metal Exchange or Shanghai to COMEX, Qian views that redistribution as negligible.

“The net amount of copper supply and the net amount of copper demand in the world probably isn’t going to change that much,” he said, adding it’s a minor and temporary distortion.

He believes the real upside lies in the earnings potential for Freeport’s US-based operations. If the tariff goes through as proposed, it could add roughly $3.2 billion annually to Freeport’s free cash flow.

However, Qian also noted that markets may be discounting this upside due to uncertainty around whether the tariffs will be fully implemented, repealed, or softened with country-specific exemptions.

While Qian typically doesn’t pit metals like copper, gold, or silver against each other in performance, he acknowledged that copper has recently outpaced its peers, noting that COMEX copper price is up 13.5 per cent, the LME price of copper is down 2 per cent, and gold is around -1 per cent.

He also acknowledged that while copper has done better over the past month, he cautioned against reading too much into those gains. Following the tariff news, copper, like much of the market, initially dipped before markets began to recover as fears of the most extreme outcomes faded.

As a result, the LME copper price is now roughly back to where it was before the tariff announcement, and most copper stocks have also rebounded to previous levels. But the real development, he said, is the growing gap between US and global copper prices adding that LME copper right now is around $4.35 per pound while COMEX is around $5.50.

“You already have a premium. It's not a full 50 per cent premium yet but should the tariff actually get enacted, that’s what it should settle out to,” he noted, adding that spread is being driven by the anticipated 50 per cent US import tariff.

Meanwhile, Raghav Mehta, vice president and ETF strategist at Global X, disagrees, at least in part. For him, the implications of the copper spike go far beyond a single stock.

“Copper historically has exhibited low to moderate correlation with equities and bonds, helping reduce overall portfolio volatility,” he said. “It also acts as an inflation hedge preserving real purchasing power in the economy.”

Where Qian sees an isolated benefit, Mehta sees a multi-asset opportunity, underscoring that copper plays a critical and often underappreciated role in institutional portfolios, particularly in times of market stress and inflation.

Unlike equities and bonds, copper offers diversification through its historically low to moderate correlation with both asset classes.

“Adding a modest copper allocation can actually help smooth your returns during equity market drawdown scenarios or downturns or even if it's a bond selloff,” he said. “It also acts as an inflation hedge, preserving real purchasing power in the economy,” citing research showing that portfolios with commodity allocations, especially metals, have outperformed the traditional 60/40 mix by up to 1 per cent annually since the 1940s.

“Even though people think gold plays that role, copper also has that similar characteristic, despite the fact that it's more of an industrial metal,” he added.

He also sees a strong long-term case driven by structural supply shortages and rising demand from electrification, EV production, data centers, and renewable infrastructure.

“Copper is now the transition metal. There’s a crazy demand growth, but the supply is kind of constrained,” noted Mehta, pointing to factors like declining ore grades and long mine development timelines.

He sees this environment as ripe for strategic copper allocations, especially through ETFs, like Global X’s Copper Producers Index ETF, or futures strategies, to improve both diversification and risk-adjusted returns.

However, Mehta also cautions that the copper tariffs have shifted the metal firmly into macro territory, with prices now highly sensitive to geopolitical events and policy risk, warning that institutional investors need to account for much larger price swings due to regime uncertainty.

Ahead of the anticipated 50 per cent US import tariff taking effect on August 1, Mehta pointed to a spike in US copper imports and a surge in domestic prices as buyers moved to stockpile inventory, noting that sophisticated allocators are employing arbitrage strategies - buying low in London and selling high in the US - and using tools like basis trades, roll yield plays, and option overlays to manage volatility and pursue alpha.

Additonally, Mehta emphasized institutions are increasingly tilting toward domestic copper producers and away from import-dependent peers.

“EVs, electrification, renewables, data centers for AI, all these themes will continue to support a structural copper deficit,” said Mehta.

While Qian agrees that demand will likely increase in these areas, he cautions that the net impact may be overstated.

“If you put on more renewables, you have less coal plants and you're actually not building some other stuff that takes copper,” he said. “There's a little bit of an offset. It's still positive. I just don't think it's quite as positive as maybe people talk about.”