The basic industries sector is the category of the stock market that comprises the stocks of companies that provide goods and materials, that get used by other companies. Companies under this category include packaging, chemical producing companies and companies dealing in the mining and refining of metals.
The basic industries sector is highly sensitive and susceptible to the level of business activity. A strong economy is a determinant to the quantity of raw material that would be needed for manufacturing and construction. The fluctuations in the price of raw materials due to the forces of demand and supply can effect the performance of the basic industries sector.
The companies under the category of basic industries are involved in the exploration, development, and initial refining of products that are known as raw materials. The products are resources and substances that occur naturally. Their supply could be limited due to natural deposits and may not be available in unlimited quantities at any point in time. The materials covered by the basic industries sector include all mined materials such as ore, metals, and gold, and all forestry products like lumber. Also included under this sector are producers of chemicals and energy sources. However, not all companies that work with materials can be classified under basic industries sector.
In relation to consumer goods, the basic industries sector is influenced by the forces of demand and supply. A decrease in the demand for consumer goods will cause a direct reduction in demand for raw materials used in the production of such goods and vice versa.
Changes in the housing market have a direct impact on the basic industries sector. A large portion of produced raw materials parts of constituents are used for construction. If there are new housing development projects, the demand for raw materials and lumber products will be high, and there will be a positive impact on the performance of basic industries sector in the stock market.