LONDON, Nov 11 (Reuters) - Copper has been added to the U.S. government's list of critical minerals - the metals deemed vital to the country's economic and national security.

Fortunately, the United States has already accumulated what is the world's second largest copper stockpile, behind China's state reserves.

It has done so without spending a dollar of federal money. Rather, the copper market has done all the work in the form of a yawning arbitrage gap between the U.S. price traded by the CME , and the international price traded on the London Metal Exchange (LME).

The pricing differential has already drawn massive amounts of physical copper into the United States. And it's still doing so as the market bets that the critical mineral designation, first flagged in August, increases the chances of U.S. import tariffs.

TRADING THE GAP

When U.S. President Donald Trump ordered an investigation into copper imports on national security grounds in February, the market moved quickly to price in the potential for U.S. import tariffs similar to those already imposed on steel and aluminium.

The CME spot premium over the London market stretched to almost $3,000 per metric ton at one stage in July, creating an extraordinary opportunity for the world's largest traders to ship as much physical metal as they could get their hands on to the United States.

The premium imploded in July when the Trump administration blind-sided the market by imposing tariffs on imports of copper semi-manufactured products but deferring until July 2026 a decision on refined metal.

Tariff trade over?

So it seemed, but the arbitrage gap has been widening again. The spot CME premium has rebounded from under $100 per ton in August to over $300, while the 10-month forward premium is now priced at almost $800 per ton.

Sure, the current arbitrage gap is not nearly as wide as it was in July, but it's more than enough to cover the physical costs of shipping units to the United States.

MARKET OF FIRST RESORT

This year's tariff trade is visible in the form of rising copper stocks held by the CME, which has only domestic U.S. delivery points.

CME stocks have mushroomed from a February low of 83,900 tons to over 335,000 tons. CME warehouses now hold more copper than the LME and Shanghai Futures Exchange combined.

Metal is still arriving in the CME delivery network every day, mostly at New Orleans but there have also been inflows at Baltimore, Salt Lake City and Tucson.

What's on the CME may be just the tip of the iceberg.

Consultancy Benchmark Minerals Intelligence thinks there is in total between 731,000 and 831,000 tons of "economically trapped" copper in the United States. Trapped in the sense that it would now require a huge inversion of the arbitrage between the United States and the rest of the world to free up metal for re-export.

Indeed, given the renewed widening in the U.S. premium, the likelihood is for more metal to join the growing copper mountain rather than move the other way.

U.S. trade statistics have fallen foul of the government shutdown but refined copper imports were already over one million tons in the first seven months of the year, up almost 400,000 tons on the year-earlier period.