Due to their close ties with the commodities market, the materials sector are susceptible to cyclical demand and volatility in raw material and energy prices. While the sector’s sensitivity to business cycles can expose investors to greater risks, the area may also offer attractive returns during periods of strong growth.
“The average price of lithium rose 60% last year. It’s also up threefold since 2014. That’s according to an index by Benchmark Mineral Intelligence,” reports ETF Daily News. “Still, in February, prices calmed down — rising only slightly. That’s why we saw LIT cool its jets. Then, earlier this month, China’s lithium-ion battery manufacturers announced they would cut prices by as much as 40%. I think that scared investors into thinking that prices for the metal itself would be under pressure.”
With the economy recovery maturing, the materials sector, which is closely tied to the prices of raw materials, have traditionally done well as inflation rises and late-cycle economic expansions help support demand.
With more lithium battery factories coming online, production of the metal could triple over the next five years.