Basic Materials

what is Basic Material in Finance? 

With the high rise of the production and manufacturing sector, there is a consistent demand for basic materials. To meet the demands of manufacturers for production materials, a whole basic material industry has emerged to focus on the discovery, development, and processing of raw materials, and taking it upon themselves the responsibility of providing manufacturers with all kinds of basic materials required to keep their businesses rolling. All finished products bought today are a product of basic materials.

What are Basic Materials?

Basic materials are the materials required by manufacturers to manufacture their finished products.

The basic materials sector is made up of practically all kinds of manufacturing materials. The basic materials industry goes a step further to discover raw materials, develop and process them before selling them to manufacturers. Basically, any manufacturing material could qualify as basic material, however, there are major basic materials which come in high demands such as metals (precious metals and industrial metals), chemicals (agricultural and industrial purposes), and energy materials (crude oil, gasoline, diesel, natural gas) amongst others.

What are Raw Materials?

Raw materials are materials that are directly gotten from nature. Every naturally occurring substance can be referred to as raw material, so long as it can be processed into production material. Some are limited by their time cycles or total availability while others are simply unlimited.

The Basic Materials Sector

The basic materials sector is made up of the stocks of companies involved in the discovery and processing of raw materials for the purpose of providing manufacturers with basic materials. In the U.S. the basic materials sector is relatively small compared to the rest of the market. Its stocks make up only 3.5% of the total market capitalization within the S&P 500. The sector is made up of companies that deal with the processing of metal, mining, chemical, and forestry raw materials. Due to the less importance of processing certain raw materials such as agricultural products, the companies involved in this sector are majorly concerned with the supply of construction materials, and other non-perishable raw materials such as oil, metals, stones, etc.

In some parts of the world, basic materials are a big deal as they make up a large portion of some nations’ economies. Countries rich with natural resources with high demands by the basic material sector stand to make trillions of dollars. For example, Brazil has over a billion acres of timber reserves and it exports large quantities to manufacturers in China. Some African countries are also rich in raw materials such as metals, stones, coal, crude oil, etc., and their economies benefit greatly from the export of such materials on request to basic materials processing industries all around the world.

Companies that deal with the discovery and processing of raw materials must go through basic steps to ensure that they rightly meet the demands of their consumers. The steps include;

• Discovering locations rich with the target raw materials

• Get necessary licensing and permission to explore designated locations for raw materials and extract them

• Decide whether or not to build a processing plant in the location of the raw materials or make plans to transport the raw materials back to the company’s base for refining

• Implement necessary market strategies to attract consumers for processed materials.