Some commodities performed admirably last year. Others did not. That serves as a reminder to investors considering this asset class that picking individual commodities is equally as difficult as selecting winning individual stocks.
Some exchange traded funds ease that burden and do so with heightened near-term relevance. That group includes the KraneShares Electrification Metals Strategy ETF (KMET). Helped by exposure to to futures contracts on aluminum, copper, nickel, zinc, cobalt, and lithium, KMET sits at the epicenter of the commodities-based side of the renewable energy boom.
The ETF’s lineup is clearly broad-based. Still, its exposure to copper futures contracts – currently 29.19% of the portfolio – may catalyze the fund in 2024. Much of the spark is attributable to ongoing adoption of renewable energy products.
Copper Could Spark KMET
Copper is essential in the production of a plethora of clean technologies and green energy products. Those include electric vehicles, solar panels and more. In a recent research note, Fitch Solutions opined that renewable energy demand coupled with a declining U.S. dollar could propel prices higher in 2024.
Other research firms are similarly bullish on their outlooks for the red metal. Dozens of countries are committing to triple renewable energy adoption by the start of the next decade. Copper demand is poised to soar. Assuming soft economic landings in the U.S. and Europe, demand for the red metal could surge by 4.2 million tons by 2030, according to Citigroup.
It’s not just demand that could lift KMET’s copper holdings this year. Commodities market observers expect that supply could be crimped. When rising demand meets declining supply, commodities prices typically rise.
“Lower supply also means that new copper smelters coming online will have a shortage of concentrates to work with, said S&P Global’s Senior Copper Analyst Wang Ruilin,” reported Lee Ying Shan for CNBC. “Copper ores are extracted from the earth and then converted into copper concentrates. From there they are sent to smelters to be purified into refined copper, which sets the benchmark LME price.”
Speaking of commodities with green energy ties, some market observers believe a lithium supply shortage could occur over the next two years. That could help that commodity rebound after slumping last year. Lithium futures contracts account for 3.45% of KMET’s lineup.
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