Thirteen months have passed since President Biden signed the Inflation Reduction Act into law. In that time, there’s been ample talk regarding investment implications and potential asset-level beneficiaries.
Indeed, those lists are extensive, but investors have attractive options for narrowing the field of relevant Inflation Reduction Act assets. After all, this is the most expansive climate legislation in U.S. history, confirming the pertinence of exchange traded funds such as the KraneShares Electrification Metals Strategy ETF (KMET ).
KMET, which turns a year old next month, follows the Bloomberg Electrification Metals Index. That gauge is comprised of futures contracts of aluminum, copper, nickel, zinc, cobalt, and lithium. These are metals that are essential to driving the global renewable energy boom. That makes KMET a relevant play on the Inflation Reduction Act and recent data from S&P Global confirms as much.
Good Timing for KMET
S&P’s Inflation Reduction Act: Impact on North America metals and minerals report confirms that the legislation should be a catalyst for increased demand for the aforementioned metals, among other commodities with ties to renewable energy.
KMET components cobalt, lithium and nickel are among the likely beneficiaries of the seminal legislation. Data confirms significant upticks in demand for those metals.
“Namely, US energy transition demand from clean tech such as EVs, charging infrastructure, solar PV, wind and batteries, will continue to accelerate and be materially higher for lithium (+ 15%), cobalt (+ 14%) and nickel (+ 13%) by 2035 than was projected before the IRA was enacted in August 2022,” according to Smart Energy International.
Copper, another metal represented in KMET, isn’t considering a “critical” material, but its post-Inflation Reduction Act demand trajectory is expected to experience a double-digit increase. The red metal is essential in the production of electric vehicles and solar panels, among other green energy products.
Obviously, KMET is a commodities ETF, meaning supply/demand dynamics are pertinent to investors considering the fund. Supplies of many of the metals represented in the fund are currently solid and, as noted above, demand is rising. Of the six metals KMET provides exposure to, nickel could be a contributor to upside for the fund. Its demand is soaring while supplies are constrained.
“Nickel was found to be the most challenged in terms of supply. There does not appear to be enough nickel supply in FTA countries to meet demand under the IRA requirements—even if all primary nickel production in FTA countries was exported to the US,” added Smart Energy.
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