"Security Premium" is Inflating Commodity Prices Beyond Tariffs

Global commodity markets are undergoing a fundamental shift, driven not just by geopolitical risk or environmental concerns, but by a new "security premium," according to Jeff Currie, Chief Strategy Officer of Energy Pathways at Carlyle. This premium, fueled by rising tariffs and anxieties over supply chain vulnerabilities, is forcing businesses and consumers to pay more to ensure access to essential resources, experts say.

"What we're gonna start to see is that's what's going on with aluminum and copper today is they're going to price in a security premium to make sure you have that supply in your country, domestically protected and duty paid," Currie said during a Bloomberg interview. "You're seeing it in gold and you're seeing it across the metal space. Um, and in particularly in energy, we're beginning to see that."

This shift comes amid a global trade war characterized by escalating tariffs, particularly between the United States and its trading partners like Canada and the European Union. These tariffs, initially imposed on steel and aluminum, have now expanded to 289 steel and aluminum downstream product groups, according to a Reuters report.

The imposition of a 25% tariff on inbound aluminum has led to an unprecedented surge in the US Midwest duty-paid aluminum premium, reaching a record high of nearly $900 per metric ton, a 60% increase since the start of 2025. This premium reflects the added cost of ensuring a secure supply of aluminum in the face of tariffs and potential disruptions.

"America needs aluminum," the Aluminum Association noted recently, pointing out that the U.S. is heavily reliant on imports, particularly from Canada, to meet growing demand. "The industry's decades-long trading relationship with Canada is a good deal for America. The aluminum we import from Canada today is equivalent to the energy generated by at least four Hoover Dams."

The situation is further complicated by energy security concerns, particularly in the aluminum sector. Currie noted that aluminum smelting is incredibly power-intensive, making it difficult to onshore production in countries already facing energy constraints. He pointed to Quebec's hydroelectric power as a critical source of cheap aluminum for the U.S., suggesting that tariffs that disrupt this supply could lead to higher prices.

The impacts of this "security premium" are already being felt across various industries. CBS reported that steel and aluminum tariffs could cause broad price hikes across industries and that anything made with metal, from homes and cars to canned foods and beverages could soon get a new and higher price tag. The American Automotive Policy Council, representing Ford, General Motors, and Stellantis, warned that the new tariffs "will add significant costs for automakers, suppliers, and consumers."

The rise in commodity prices, coupled with supply chain disruptions, is also driving investors towards safe-haven assets like gold. Last Friday, the price of gold has hit the $3,000 per ounce mark for the first time, driven by escalating trade tensions and economic uncertainty.

But it's not just precious metals feeling the pressure. Base metals, critical for industrial activity, are also experiencing price surges as the "security premium" takes hold. Copper prices have climbed, and are now trading near a five-month high. Citigroup analysts predict that LME copper will soon hit $10,000 per tonne as traders rush to ship copper into the U.S. ahead of expected tariffs, potentially tightening supply in other markets.

As countries prioritize securing access to essential commodities, Currie believes that the market volatility will only increase as the global economy adapts to the new "jewel order". This order is characterized by a diversified set of energies. In this new environment, diversification is key to weathering potential disruptions. This is a considerable shift from a focus on pure levelized cost of energy (LCOE) and more about guaranteed reliable supplies.

The long-term implications of this "security premium" remain uncertain. However, experts agree that businesses and consumers should brace for higher prices and increased volatility in commodity markets as countries grapple with the challenges of a fragmented global trade landscape and heightened security concerns. As Currie succinctly put it, "You're gonna pay up to produce this stuff at home."