Basic Materials Sector: Definition, Examples, and Stocks

Overview

The basic materials (or materials) sector comprises companies that discover, extract, develop, and initially process naturally occurring resources used across the economy. This includes mining and metal refining, chemical producers, forestry products, and producers of construction materials. Because these businesses supply inputs for manufacturing and construction, the sector is highly sensitive to the business cycle and tends to perform better when economic activity is strong.

What the Sector Includes

• Extraction and initial processing of raw materials: metals, ore, stone, timber, and similar resources.
• Chemical producers that supply bulk industrial inputs.
• Forestry and lumber products for construction.
• Containers and packaging materials (glass, metal, cardboard).
• Certain energy commodities in their natural or broadly used refined forms (e.g., crude oil, coal, natural gas, gasoline), since they are fundamental inputs across industries.

What Is Not Included

• Firms that primarily transform or sell finished goods made from raw materials (for example, jewelry retailers or wholesalers) are typically classified outside the materials sector.
• Not all chemical producers are classified as basic materials; specialty or finished-chemical manufacturers (for instance, some fertilizers, paint additives, or pharmaceutical chemical producers) may fall into other industry categories.

Demand and Cyclicality

The sector follows basic supply-and-demand dynamics:
– Demand for raw materials closely tracks demand for consumer goods and construction activity. A slowdown in manufacturing or housing reduces demand for materials such as metals, lumber, and aggregates.
– Commodity prices and material producers’ revenues can be volatile, influenced by global economic growth, inventory cycles, and shifts in industrial demand.

Examples of Companies and Investment Options

Representative companies (by business type) include:
– Large integrated oil companies and oil-field services firms involved in extraction and processing.
– Major chemical producers.
– Producers of construction materials (crushed stone, gravel, concrete, finished steel).

Investors can gain exposure through:
– Individual stocks of materials companies.
– Sector-focused mutual funds and ETFs that concentrate on materials (hundreds of funds and ETFs exist, ranging from broad materials ETFs to niche funds such as gold-miners or chemicals-focused funds).
– Examples of widely known ETFs and funds include broad materials ETFs from major providers and targeted funds like gold-miner or chemicals funds.

Key Takeaways

• The basic materials sector contains companies that produce and initially process raw, naturally occurring resources used across nearly all industries.
• It is cyclical and sensitive to economic growth, manufacturing activity, and the housing market.
• Not all firms that use materials are part of the sector; classification depends on primary business activity.
• Investors can access the sector via individual stocks or a variety of mutual funds and ETFs, from broad materials ETFs to specialized funds focusing on metals, chemicals, or mining.