Thematic hub | Materials

What is the materials sector?

The materials sector, sometimes referred to as basic materials, handles the raw inputs used in industrial processes or consumer goods. Materials companies are involved in the discovery, extraction, processing, and manufacturing of diverse materials including paper, chemicals, metals, and more.

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Businesses in the materials sector produce the essential inputs required for later manufacturing as well as finished products such as paper. The materials sector is one of the largest stock sectors in terms of number of companies, containing businesses with widely differing business models, from mining companies to chemical manufacturers. What connects these varied businesses is their position at the beginning of supply chains, producing large quantities of goods on tight margins.

Investing in basic materials stocks

Investing in materials stocks offers exposure to companies that provide the essential inputs for economic development and industrial activity. These businesses typically demonstrate cyclical performance closely linked to commodity prices, economic growth rates, and construction activity, although some basic materials have fairly stable demand. During economic expansions, materials companies often benefit from increased demand and pricing power for their products. Conversely, during downturns, reduced industrial output and construction can impact performance, making materials stocks generally sensitive to economic cycles and global trade conditions. Basic materials are closely linked to energy stocks, with some investors including oil companies in basic materials, and industrials.

Commodity exposure and economic fundamentals

Materials companies provide investors with indirect exposure to commodity markets without the complexity of futures trading. Share prices of mining companies, for instance, correlate with the underlying prices of the metals they produce, while chemical manufacturers are affected by energy and feedstock costs. Supply constraints, from resource scarcity to processing bottlenecks, can significantly influence pricing power and profitability across the sector, as they do in commodity markets. Demand drivers include construction activity, manufacturing output, and infrastructure development.

Sector Highlights

Global market size: The MSCI World Materials Index, designed to capture the performance of 91 large and mid-cap companies across developed markets such as the US, Canada, Australia, the UK, and Switzerland, has a total market capitalisation of $2.28 trillion.
Top stocks: Linde, BHP Group, Rio Tinto
Important themes: Sustainability, trade, commodity cycles

Materials subsectors

Materials is a diverse group with many subsectors. The largest individual subsectors include speciality chemicals, gold, building materials, and copper producers. Materials subsectors can be organised into layers according to the type of commodity produced, since companies operating in similar markets often display the same price characteristics.

Chemicals

A diverse subsector of materials stocks that includes the shares of companies manufacturing industrial chemicals.

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Construction

Comprise of companies that produce cement, bricks, and other essential products for construction.

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Metals & Mining

Comprised of companies engaged in the discovery, extraction, or processing of metal ores and minerals.

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Plastics

Include companies that manufacture essential polymer materials and chemical compounds known as plastics.

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Find out more about manufacturing PMI and how it can influence materials orders here.

Important materials stocks

Pricing and sentiment does not represent ADSS data or market view.

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Market trends impacting materials stocks

Materials stocks are influenced by global trade patterns, with tariff policies, regional economic growth rates, and shipping costs directly affecting profitability and competitive positioning. Recent tariff changes have significant implications for materials companies, as they often operate across borders and rely on efficient movement of high-volume, low-margin products. Trade tensions between major economies can rapidly alter the economics of materials businesses, with tariffs on metals, chemicals, and other basic materials directly impacting cost structures. Companies with diversified production bases and the ability to serve multiple regional markets from local facilities may demonstrate greater resilience amid changing trade conditions, but all businesses are vulnerable to fixed percentage tariffs in an industry where margins are low.

> Commodity cycles and price volatility

Commodity price cycles remain the most significant driver of materials sector performance, especially for metals and mining companies. Mining companies, metal refiners, and chemical manufacturers all experience margin fluctuations as input costs and selling prices shift throughout commodity cycles. High prices and resource scarcity drive investment into exploration and capacity expansion, followed by periods of oversupply and price weakness as new production comes online. This cyclicality is particularly pronounced for industrial metals and bulk chemicals, where substantial capital investment creates long lead times for capacity adjustments. Materials companies with lower production costs, stronger balance sheets, and operational flexibility typically outperform through complete commodity cycles. Producers can use futures and other financial derivatives to minimise their market risk but this comes at a cost and it is difficult to fully hedge production.

> Construction activity and infrastructure investment

The construction industry drives demand for materials across multiple subsectors, from cement and aggregates to steel, glass, and specialty chemicals. Housing market conditions, commercial real estate development, and public infrastructure programmes all influence materials consumption. Major infrastructure initiatives create business for construction materials producers, while housing market slowdowns can significantly impact volumes and pricing. The growing emphasis on sustainable building practices also impacts material selection, creating both challenges and opportunities for traditional materials suppliers.

> Sustainability and regulatory pressures

Environmental concerns have a growing impact on materials sector operations and investment decisions. Stringent emissions regulations and a growing scrutiny of environmental footprints create regulatory and political risk for basic materials companies, especially in the construction subsector. Elsewhere, chemical companies face enhanced regulatory oversight over product safety and manufacturing processes, while mining operations are faced with stricter permitting requirements and rising associated costs. These trends are driving significant capital investment in cleaner production technologies and more sustainable product formulations, and potential future changes to regulation create uncertainty for materials businesses.

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FAQs

What factors most influence materials stocks and the broader materials sector?

Materials stocks, including chemical companies, mining stocks, and glass manufacturers, are highly sensitive to economic cycles and commodity prices. The materials sector typically experiences volatility as industrial metals and construction materials demand fluctuates with global economic conditions. Companies in metals and mining particularly feel the impact of commodity price shifts, with precious metals stocks sometimes moving counter-cyclically during economic uncertainty. For investors in materials stocks, understanding the correlation between infrastructure spending, manufacturing activity, and the performance of commodity stocks provides valuable insight into potential investment timing.

How do construction materials companies differ from other segments within the materials sector?

Construction materials represent one of the largest subsectors within the materials sector, with companies producing cement, aggregates, glass, and structural components for building projects. Unlike in the chemicals or precious metals sectors, where investment opportunities may be driven by specialised industrial applications or store-of-value considerations, the performance of construction materials companies is directly tied to housing markets, commercial development, and infrastructure projects. These businesses typically experience more regional variability than global commodity stocks or industrial metals producers, as local building codes, transportation costs, and regional economic conditions heavily influence demand patterns and pricing power.

Should investors consider plastics manufacturers as part of a diversified materials portfolio?

Plastics manufacturers are an important subsector within materials stocks, with characteristics in common with chemicals companies and consumer goods. Plastics manufacturers often demonstrate more stable demand patterns than mining stocks or industrial metals producers, both of which experience pronounced commodity price cycles. When constructing a diversified materials portfolio, investors may benefit from balancing more volatile precious metals stocks and cyclical construction materials companies with plastics manufacturers whose products serve essential consumer and industrial applications, potentially providing more consistent performance across economic cycles. The relationship between plastics and other materials companies can be compared to that between consumer staples and consumer discretionary stock sectors.