Materials sector continues to see red as macro pressures persist

Materials stocks dropped around -23% in the first nine months of 2022, compared with an around -24% drop for the S&P 500 and SPDR S&P 500 Trust ETF (SPY). Materials Select Sector SPDR ETF (XLB) was also down around -23% during the period and dropped -7.35% in Q3.

Industrial metals had a rough six months, and Q3 continued to see the sector hurt by tight supply conditions ever. On the London Metal Exchange, three-month copper (HG1:COM) closing prices have fallen nearly -9%. According to Reuters, benchmark LME copper recently traded -0.8% at $7,375/metric ton after tumbling to as low as $7,292, the lowest since July 21.

Meanwhile, LME aluminum prices (LMAHDS03:COM) have continued to drop to new 18-month lows and fell around -10% in Q3. The metals continue to be weighed by ongoing fears of a global growth slowdown, weaker demand and a higher dollar.

Aluminum consumption and prices are expected to remain under pressure due to slowing growth, and a production ramp-up in China also is weighing on prices.

Lumber prices (LB1:COM) have dropped by more than -60% YTD to their lowest in more than two years, and a recovery seems improbable given that higher interest rates and inflation likely will continue to hurt demand for single-family homes.

The rate at which new U.S. housing is being built is down -13% from April, when residential construction activity hit its highest level in more than a decade, according to the Census Bureau.

Three-month comex gold (XAUUSD:CUR) also hit a fresh two-and-a-half year low recently, and has dropped nearly 9% in Q3. Silver (XAGUSD:CUR) also finished -9% at $18.84/oz as the dollar jumped against major currencies and rising worries that central bank tightening could spark a global recession.

The dollar touched a 20-year high, hurting demand for dollar-priced bullion, while benchmark 10-year yields popped to their highest since April 2010.

“The risks of a hard landing are elevated and this has been continuing to drive flows into the dollar, which has been bad news for gold,” Oanda’s Edward Moya said.

Let’s take a look at the top-performing material stocks ($2B market cap or more) for Q3.

• Sigma Lithium (SGML) +76.56%; Lithium stocks made up four of the top five gainers on the back of surging lithium prices. The metal has skyrocketed nearly 500% during the past year thanks to tight supply and rising demand for electric vehicles.
• Livent Corp (LTHM) +35.08%
• Lithium Americas (LAC) +30.30%
• Albemarle (ALB) +26.54%
• CF Industries (CF) +12.27%; The stock has been rallying on the strength of fertilizer prices, which are expected to remain elevated for the foreseeable future.

The worst performing material stocks ($2B market cap or more) were:

• Scotts Miracle-Gro (SMG) -45.88%; Margins and growth have come down for the agri firm this year, with financial results falling short of market expectations.
• Avantor (AVTR) -36.98%; Shares have fallen recently on guidance cuts.
• Braskem (BAK) -31.79%; Shares are down nearly 51% YTD, although SA authors and Wall Street rate the stock as a Buy.
• Newmont (NEM) -29.56%; The stock is among several precious metals movers that have seen sustained pressure from a drop in gold prices.
• Alcoa (AA) -26.15%; Shares have dropped 45% YTD on aluminum weakness.

Other materials ETFs to watch: iShares Global Timber & Forestry ETF (WOOD), Materials Select Sector SPDR ETF, Vanguard Materials ETF (VAW), iShares Global Materials ETF (MXI), SPDR S&P Metals and Mining ETF (XME), VanEck Vectors Gold Miners ETF (GDX), iShares MSCI Global Gold Miners ETF (RING), Global X Copper Miners ETF (COPX).