Base Metals & Iron Ore

The global energy transition will become more disorderly, if oil-and-gas capex growth continues to outpace that of critical minerals. We remain long exposure to the equities of oil and gas producers via the XOP ETF; the COMT ETF to retain direct commodity exposure, and $100/bbl December 2024 Brent calls. Slower supply growth of metals facing off against steadily increasing demand also favors exposure to metals miners and refiners via the XME ETF.

In this Strategy Outlook, we present the major investment themes and views we see playing out for the rest of 2023 and beyond.

In this report, we highlight why there are upside risks to Brent crude oil and copper prices going into 2024, with the production side expected to drive deficits in these markets. To take advantage of a potential rally, we suggest basket plays for hedging this outcome.

Contrary to the widespread belief in the investment community, the global copper supply-demand balance is no longer in deficit. Red metal prices are set to decline by another 10-15% as the global copper market will shift to a larger surplus in the next six months.

Both EV and Green Energy themes still hold strategic promise for investors, posing large upside, despite prevailing macro headwinds. While both themes have yet to claw back their pandemic peaks, a broadening of the rally supports a run for both, even in the face of high valuations.

Recession is on track to start around year-end. Stocks usually peak shortly before recession begins. So, position defensively but be prepared for a few more months of the rally.