How the Materials Sector Can Provide the Essentials for Other Industries

What is the materials sector?

When you wrap a package, open a jar, or put on your watch—you’re probably using products made in the materials sector of the economy. 

The materials sector includes the production and distribution of raw materials such as paper, plastic, glass, chemicals, metals and more. These products power construction sites, farms, offices, and homes. Other sectors of the economy, from utilities to real estate to consumer staples, rely on the materials sector to function. 

The materials sector is considered cyclical, meaning that it reacts to the overall performance of the economy. So when the economy is doing well, stocks in the materials sector are more likely to increase in value and when the economy is doing poorly, these stocks are likely to also fall. 

Adding the materials sector to your portfolio can help you diversify your portfolio. A diverse portfolio should include holdings in stocks, bonds, and ETFs across a variety of sectors and economies. And while stocks in this sector have fallen as a result of the Covid-19 pandemic, as vaccination begins more widely and the economy starts to recover, according to the Nasdaq, the materials sector is also expected to rebound.

The materials sector can be confusing since it involves so many different industries and contributes to other sectors of the economy. Here’s a look at what makes up the sector:

Mining

Mining for minerals, metals, and other resources such as oil and coal is part of this sector. In 2020, the mining industry produced $362 billion in revenue in the United States and employed roughly 537,000 people. The three biggest mining companies in the U.S. by market capitalization are Newmont Mining Corporation ($10.5 billion), Peabody Energy Corporation ($4.2 billion), and Arch Resources Inc. ($2.1 billion). 

Logging and forestry

The production of paper and paper products including cardboard, toilet paper, and paper towels depends on the logging and forestry industry. Forestry generates $96.1 billion in revenue. Logging employs more than 91,400 people in the U.S, who are responsible for the cutting down of trees to be used for paper products. The largest timber companies by capacity in the U.S. include Weyerhaeuser Co., Georgia-Pacific LLC, and West Fraser Timber Co. Ltd.

Chemical manufacturing

Chemical manufacturers develop cleaning supplies and sanitizers, plastics and other synthetic materials, prescriptions, medicines, and more. In the U.S., the chemical industry is valued at $565 billion. An estimated 544,000 people work in the production of chemicals. The leader in chemicals in the U.S. is Dow, which brought in $43 million in sales in 2019. Dow is followed by ExxonMobil, which saw $27.4 million in sales, and LyondellBasell with $27.1 million in sales.

Base and precious metal production

Another significant component of the materials sector is the mining and refining of both base and precious metals. These metals are used in everything from construction and manufacturing to jewelry making. In 2021, the nonferrous metal refining market, which is made up of metals that don’t contain iron, is predicted to grow 3.8% to $10.1 billion. 

Base metals, which are also known as non-precious metals, are typically more abundant and easily mined than precious metals. Copper, lead, zinc, aluminum, and tin are considered base metals. While they’re not as valuable as precious metals, they are critical to industrial manufacturing, and therefore valuable to the economy. 

Precious metals, such as gold, silver, platinum, and palladium, are considered precious because they’re rare. In addition to their use in jewelry, they are frequently used in industrial and manufacturing processes. Some people choose to invest in precious metals, particularly during economic downturns, since they have a concrete value. Although precious metals are typically a safe haven to investors, they can also be volatile, moving dramatically according to conditions and demand. 

Investing in the materials sector

If you’re interested in investing in metals, you can buy shares or fractional shares of companies that mine precious metals or invest in them. Or you can actually buy gold buillon, or gold in its raw form, as bars or collectible coins. You might also invest in an exchange-traded fund (ETF) specializing in precious metals that allows you to invest in gold, silver, platinum, and palladium in one investment. 

You can browse investments that Stash offers that are in the materials sector and produce chemicals, metals, plastics, and other raw materials, here. 

Keep in mind that the materials sector is cyclical, which means that it moves according to the economy. So investments in companies in this sector can move wildly when the market experiences a big upturn or downturn. Remember to follow the Stash Way by diversifying your investments and investing regularly over the long term. Doing this can help balance your portfolio and protect you from taking on too much risk.