The basic materials sector is an industry category comprising businesses focused on the discovery, development, and processing of raw materials. This sector includes companies engaged in mining, metal refining, chemical products, and forestry products.
These companies provide most of the materials used in construction, making their stocks highly sensitive to changes in the business cycle. They tend to prosper when the economy is strong.
Basic Materials Unveiled
Companies in this sector are involved in acquiring, developing, and processing the raw materials, such as oil, gold, and stone, that form the backbone of manufacturing and construction.
Key Takeaways
- The sector includes companies involved in the discovery, development, and processing of raw materials ranging from gold and oil to timber.
- These materials are completed and sold for use in almost all other industry sectors.
- The sector is particularly responsive to the economic highs and lows.
Naturally occurring resources are mainly finite and take millions of years to form, thus requiring sustainable and innovative planning. Some resources are reusable but not available in infinite quantities at any given time.
The Basic Materials Stock Sector
In the stock market, basic materials include mined products like metals and ore, forestry products like lumber, and certain chemical producers and energy sources.
Packaging materials such as glass, metal, or cardboard are also categorized under the basic materials sector.
Defining Basic Materials
Not all enterprises dealing with basic materials fall into this category. For instance, while a mining company qualifies as a basic materials processor, a jewelry company using mined metals would be considered a retailer or wholesaler.
Even within chemicals, specific products like industrial fertilizers or paint additives may be classified under other industrial categories.
Energy Sources
Certain energy resources, primarily natural gas, and crude oil, also qualify as basic materials, even in their refined states like gasoline. These products are in high demand and vital for the operation of nearly every industry.
Demand for Basic Materials
The sector is governed by the principles of supply and demand. A decrease in consumer goods demand inevitably lowers the requirement for the raw materials involved in their production.
This sector is also influenced by fluctuations in the housing market, as many raw materials are used in construction. A slowdown in new housing developments leads to a reduced demand for lumber, for example.
Key Takeaways
- Companies in the basic materials sector are fundamental to the discovery, development, and processing of raw materials.
- These materials are essential for much of the goods produced in other sectors.
- Basic materials primarily include naturally occurring substances like oil, stone, and gold.
- The sector is influenced by supply and demand dynamics.
Top Basic Materials Companies
Some of the largest American companies in this sector include oil giants such as Exxon Mobil Corp., Chevron Corp., and Schlumberger Ltd., leaders in oil field services.
Chemical industry leaders like DuPont de Nemours and Monsanto Co., along with significant construction material producers like Vulcan Materials Co. and Steel Dynamics Inc., are also key players.
Basic Materials Investments
More than 300 stock mutual funds, index funds, and exchange-traded funds (ETFs) are specialized in the basic materials sector. Notable ETFs include Vanguard Materials ETF, iShares Global Materials ETF, and iShares U.S. Basic Materials ETF.
Some mutual funds and ETFs concentrate on narrower segments, such as the Fidelity Select Chemicals Fund and VanEck Vectors Gold Miners ETF.
Understanding and investing in the basic materials sector can provide robust insights and potential financial growth opportunities by leveraging the fundamental components that drive global industries.
Related Terms: mining, forestry, chemical industry, energy resources, stock market sector.
References
- Morningstar. “Basic Materials Stocks”.
- iShares by BlackRock. “iShares U.S. Basic Materials ETF”.
- iShares by BlackRock. “iShares Global Materials ETF”.
- Vanguard. “Vanguard Materials ETF”.
- Yahoo! Finance. “VanEck Vectors Gold Miners ETF (GDX”).
- Fidelity. “Fidelity Select Chemicals Portfolio”.
