There are some certainties surrounding rare earth minerals and strategic metals. Demand for those materials was increasing prior to end markets such as EVs and renewable energy entering the equation. Surging demand, coupled with increased mining regulation in the U.S., has stoked soaring imports for rare earths and strategic minerals. Many of those imports come from countries such as China, which are not geopolitical allies of the U.S.
Amid a growing field of applications for metals, such as aluminum, copper, lithium, and more, more corporations and policymakers are waking up to the fact that it would be more prudent over the long term to source these metals domestically. As that movement takes shape, the KraneShares Electrification Metals Strategy ETF (KMET) could be an exchange traded fund that benefits.
KMET Credible as US Mining Expands
KMET’s underlying index features exposure to commodities, not stocks. Its components are highly relevant throughout the clean technology and renewable energy ecosystems. Those are aluminum, copper, nickel, zinc, cobalt, and lithium.
These metals and others are defined as “critical” by the Energy Act of 2020. There are potential vulnerabilities should respective supply chains be disrupted. In other words, there’ i sound reasoning behind efforts to source more of these materials from within the U.S.
“It is quite a complex issue, but the bottom line is that the US has scaled back its mineral extraction, processing and refining capabilities since the 1950s, because of environmental concerns and economic considerations like higher labor costs and lower economies of scale,” noted Carlos De Alba, Morgan Stanley head of the Metals and Mining Team in North America. “As mining activities decline in the U.S., the country has increasingly relied on imports from China, Brazil, Mexico, South Africa, Indonesia, Canada and Australia, among others.”
Efforts to boost domestic mining of the metals represented in KMET are in the early innings. There are potential regulatory headwinds that need to be addressed. Production growth as a potential driver of long-term performance by the ETF is a possibility. This is because the U.S. currently derives a scant percentage of critical minerals demand on a domestic basis.
“In 24 of 50 minerals deemed critical by the USGS, the US either report less than 1% of the total global reserves or lack sufficient reserve data, which highlights the need for more comprehensive exploration and mining efforts. In the case of some battery making minerals like cobalt, nickel or vanadium, the US holds an average reserve level of only .5% of total global reserves,” added De Alba.
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