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Why isn’t there a Taco trade in copper?

The copper market does not appear to think Trump is going to chicken out on his 50 per cent tariffs on the red metal. The copper price rose 13 per cent when the levy was announced — reflecting, presumably, a rush to build US inventories ahead of the tariff’s implementation — and has stayed there. And that’s even after rising steadily for months:

The sharp move makes a striking contrast with equity and currency markets, which have been notably calm to threats against imports from Japan, Korea and Brazil.

What explains this? We see three explanations:

* Trump has stuck with his tariffs on steel and aluminium, which hit 50 per cent earlier this month. Industrial metals are especially important to the president, probably for symbolic and political reasons.

* The copper tariff seems relatively simple, and markets are more likely to price in things they think they understand. National tariffs cover a range of goods and will affect different companies differently. Exposures are complex and hard to calculate. The impact of the copper tariff is easier, in theory if not in practice: figure out how much copper is coming into the country (or company) and multiply by 1.5 to find the new price. The reality is that copper supply chains are quite complex, crossing back and forth across the US border, but reality is not always the main factor in markets.

* The copper tariffs make more sense than some others. There is a reasonably good national security case for the US having native copper supplies and smelting capacity, given copper’s importance in energy generation and Chinese dominance in smelting. And there are copper reserves in the US that higher prices might make more profitable to extract. That does not make the tariff economically efficient, but it is way less dumb than a tariff on, say, Brazilian coffee or Chinese toys.

The Unhedged view remains that Trump, when faced with real pressure from CEOs, markets, or voters, will give up his tariffs quite quickly. That said, however, the Taco trade is not monolithic.

Commodity firms poised for $300mn windfall from US copper tariff trade

Trafigura, Mercuria, Glencore and IXM set for bumper profits from metal shipped into America ahead of new levies

Trafigura, Mercuria, Glencore and IXM could reap bumper profits of more than $300mn after shipping record amounts of copper into the US ahead of tariffs on the metal.

The commodity traders are at the forefront of a trend in which huge quantities of copper are being brought to the US, where a widening price gap with the international benchmark has created a lucrative arbitrage opportunity.

US copper prices surged 13 per cent within minutes of President Donald Trump’s announcement on Tuesday that the US would levy 50 per cent tariffs on copper, twice the expected level, from August 1.

They are now about 28 per cent higher than on the London Metal Exchange, making the traders’ punt — in essence buying at the LME price, shipping to the US and selling at the US Comex price — one of the most profitable metals trades in recent decades.

While analysts question the impact copper tariffs will have on US manufacturers, commodity trading firms have emerged as the clear corporate winners.

A huge copper stockpile has built up in the US this year after trading houses shipped in large quantities as the arbitrage opportunity opened.

Trafigura, Mercuria, Glencore and IXM have brought in about 600,000 tonnes of “excess” copper that is surplus to normal demand since the election in November, according to market insiders.

“Months ago, copper traders worldwide took a punt that Trump’s tariff pitch for their market was real, not bluster. They were right, and their collective pay-off has been spectacular,” said Tom Price, analyst at Panmure Liberum.

“Because so much metal has been sent to the US, you have sucked dry the rest of the world’s copper market,” said one trader.

While exact profits vary widely depending on the structure of the trade, a conservative back-of-the-envelope calculation shows that the four firms’ collective 600,000 tonnes would yield profits of $312mn.

Taking the average differential between the LME and Comex prices since February, when US copper imports picked up, and subtracting an estimated total cost of $500 per tonne, yields a profit of about $520 per tonne, according to FT calculations and information from market participants.

Trafigura, normally the largest copper supplier to the US, has brought in about 200,000 tonnes, according to market participants. Meanwhile Switzerland-based Mercuria will have brought in nearly 200,000 tonnes by the end of the month, according to people with knowledge of the matter.

Glencore, which produces its own copper as well as trading the metal, has brought in between 100,000 and 200,000 tonnes, while IXM has brought in more than 50,000 tonnes.

The stockpile of copper amassed in the US is only the most recent commodity market ruction created by Trump’s tariff policies, after gold and aluminium went through similar build-ups earlier this year.

One of the most vocal advocates of the trading opportunity has been Mercuria, which has rapidly expanded its metals desk over the past two years.

Kostas Bintas, Mercuria’s head of metals, told the Financial Times in March that “copper is going through one of the most exceptional periods in history today” because of the unusual inflows into the US market.

Trafigura, Glencore, Mercuria and IXM declined to comment.

National Grid under renewed scrutiny over network maintenance spending

FTSE 100 company undergoing quarterly reviews by energy regulator in relation to investment in its high-voltage cables

Britain’s energy regulator is carrying out special monitoring of the National Grid as the company faces questions over whether it is doing enough to maintain key electricity networks.

The FTSE 100 company is undergoing quarterly reviews by Ofgem in relation to investment in its network of high-voltage cables, where refurbishment work has been set back by problems including supply chain delays.

The reviews began last year, before the fire in March at a National Grid substation that led to the closure of Heathrow airport and thrust the company into the spotlight.

The resulting power cut knocked out Europe’s busiest hub for 24 hours and led to significant disruption for homes and businesses.  

An official report last month concluded that the substation fire was likely caused by moisture getting into a key part of the transformer, and that National Grid had failed to replace the part despite high moisture readings at its last basic maintenance in 2018. 

An earlier Ofgem report had noted “concerning” underspending by National Grid’s transmission business, with maintenance work outstanding.

In response to questions from the Financial Times over these findings, Ofgem said it was carrying out regular reviews into National Grid’s performance in the maintenance and refurbishment of its transmission network.

It said the reviews started in 2024 and were agreed by both parties during “engagement and monitoring” and were separate to its wider engagement with National Grid on other parts of its business plan. 

National Grid denied there was a specific quarterly review into the health of its assets, but said there was “quarterly engagement with Ofgem on overall delivery against our [transmission] business plan, covering all aspects of our work”, which it said it had itself proposed.

“We believe this proposal allows for a richer picture of our performance than a one off annual report,” it said. 

Separately, Ofgem is investigating National Grid’s compliance with licence conditions relating to the same substation at the centre of the Heathrow fire, and to a substation near Carlisle in northern England. The latter probe started in 2022.

National Grid is one of the private companies that own and run Britain’s electricity transmission and distribution networks, along with SSE, Scottish Power, UK Power Networks and Berkshire Hathaway’s Northern Powergrid.

The sector has faced questions over reliability, including in the aftermath of significant storms in 2021 and 2022 when tens of thousands of homes suffered lengthy power cuts.

The resilience of the UK’s electricity networks is also under increasing scrutiny as the country transitions away from fossil fuels and towards renewable-powered electric vehicles and heating systems, and builds more energy-intensive data centres.

Dieter Helm, an energy expert and professor of economic policy at Oxford university, said the cost of power supply interruptions was “phenomenally higher now than it has been in the past”.

Mathew Lawrence, director of the Common Wealth think-tank, said transmission network owners had “habitually underinvested” in maintenance and called for a shift from an “asset sweating to an asset building” system.

A senior official at the Prospect trade union told the FT last week that electricity networks were underinvesting in maintenance.

National Grid has put itself at the centre of the shift in Britain’s energy system, adding to its transmission network by buying the UK’s largest electricity network in 2021, and selling its stake in Britain’s gas transmission network.

Its strategy has been led by chief executive John Pettigrew, who said in April that he would step down later this year after nearly 10 years in the role. He was paid £6mn in 2024-2025.  

Ofgem regulates how much network owners can spend and charge consumers, via five-yearly price controls, and monitors whether they are spending too much or too little.

National Grid’s transmission business spent 19 per cent less than its unadjusted allowances of £1.3bn for refurbishment and replacements between 2021 and 2024, the Ofgem report said.

This was due to factors including difficulties getting hold of contractors and supplies in a tight market, the report added, while some investments had been recategorised.

National Grid said it expected this gap to close by 2026, forecasting that by then it will have spent more than its allowance.

The company changed its policy in 2023 to make maintenance of its biggest transformers less frequent. It said this was in line with best industry practice. 

National Grid’s transmission division said it had spent £5bn in total on asset health over the past 10 years and plans to spend an additional £5bn on asset health over the next five years.

“National Grid is investing record levels in maintaining our assets and as Ofgem note in their performance report, we will be investing more in the network than we forecast at the start of the price control period,” the company said. “Great Britain has one of the most reliable networks in the world.”

Revolut’s latest breathless valuation

Revolut is in talks to raise new funding at a $65bn valuation to bankroll its American dream.

The UK-based fintech plans to raise $1bn by issuing new shares and selling existing stock, the FT scooped. 

It hopes to use the money to finance its global expansion, with the US market a key target.

The US investment firm Greenoaks is in talks to lead the funding round, and Abu Dhabi’s Mubadala, which first invested in the company last year, is also in discussions to participate. 

Let’s step back and talk about that $65bn figure, though. 

To start, it’s not a typical headline figure but a “blended” valuation, comprising a high price for raising new money and a lower one for existing investors selling their shares. 

Moreover, fintechs often undergo artificial valuation surges at funding rounds. Take Stripe: the payments processor reached a peak valuation of $95bn during a 2021 funding round, and then dropped off to $50bn by 2023. SoFi and Circle also had similar trajectories.

That’s not to mention Revolut’s historical challenges with regulators. 

On top of that, Revolut’s chief executive, Nik Storonsky, has major skin in the game.

If the company climbs to a $150bn valuation, Storonsky is up for a bumper pay package, the FT reported last month.

Fintechs such as Revolut have attracted towering multiples more akin to Silicon Valley tech outfits, but the bread and butter of their business remains the rather more sedate world of retail banking.

So let’s wait until the business goes public before getting too carried away with the top-line valuation. 

Major hurdle removed on path to deal between T-Mobile and U.S. Cellular

A major hurdle has been removed on the path to a deal between T-Mobile and U.S. Cellular.

The Justice Department on Thursday said its antitrust division won’t seek an injunction to prevent T-Mobile from closing on its proposed acquisition of U.S. Cellular.

After the department evaluated the deal, it determined that “the potential harm and offsetting benefits of the transaction do not warrant an enforcement action.”

T-Mobile agreed to buy most of U.S. Cellular’s operations for roughly $4.4 billion in May 2024. The agreement, which includes up to $2 billion of assumed debt, would give T-Mobile more than four million new customers and spectrum rights to carry more data over the air.