Global Investing

CHAPTER 17Materials

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Supplying both finished products and the raw materials used as inputs in manufacturing processes worldwide, the global materials sector feeds global supply chains. Most businesses in this sector are cyclical due to their sensitivity to changes in economic growth. Some companies within the sector are less sensitive to the economic cycle than others, such as companies that provide industrial gases to the healthcare sector. Another more defensive segment of the materials sector is the container and packaging industry, which manufactures packaging and cans for both the beverage and packaged food industries. End-user demand for certain industrial gases, packaging, and containers is relatively consistent when compared to many other goods produced by companies in the materials sector. It is important to note the operations of some companies within the materials sector are heavily influenced by events taking place in other industries. Paint and lumber producers, for example, are largely dependent on the strength of the housing market. Since the housing market is tied to changes in mortgage rates (which are derived from interest rates), changes in interest rates could eventually flow through to affect businesses in the materials sector as well. Some companies within the sector benefit from rising commodity prices and therefore perform well during inflationary periods. Operational scale is important for most of the businesses in this sector, since ...