How to position raw material stocks in the era of interest rate cuts? An in-depth analysis of investment opportunities in 2025

Why Are Raw Material Stocks Becoming the Next Hot Topic?

In recent years, raw material stocks have lost favor under the dual pressures of a global high-interest-rate environment and sluggish import demand from China, leading to significant capital withdrawals from related industries. However, the situation is now reversing. As central banks worldwide initiate interest rate cuts and the Chinese government rolls out intensive economic stimulus policies, raw material stocks are once again attracting investor attention with a new face. The decline in financing costs brought by rate cuts is especially beneficial for heavy-asset raw material companies, and market rotation effects are already evident.

So, how should investors seize opportunities in raw material stocks during a rate-cutting cycle? Which stocks in the US and Taiwan markets are worth watching? This article will provide a comprehensive analysis from three dimensions: industry fundamentals, specific targets, and investment indicators.

The Difference Between Raw Material Stocks and Concept Stocks of Raw Materials

Raw materials refer to products directly produced by nature without deep processing, covering sectors such as agriculture, forestry, fisheries, mineral resources, and energy. Raw material stocks (or concept stocks) are listed companies engaged in the extraction, smelting, or refining of these resources.

For example, the global iron ore mining leader Vale (VALE3) represents investment opportunities in the iron ore sector; ExxonMobil (XOM), a major US oil company, directly reflects supply and demand changes and industry prospects in the oil market. The stock price fluctuations of these companies are closely linked to raw material prices and market supply-demand relationships, making them effective ways to participate in the commodities market.

US Raw Material Stock Allocation Recommendations

Must Watch: SPDR Materials Select Sector ETF (XLB)

This ETF covers major US raw material companies across chemical materials, metals refining, petrochemicals, plastics, and construction materials, serving as a preferred tool to track the overall performance of the US raw material industry.

What are the optimistic prospects for 2025? First, the Trump administration may increase infrastructure spending, directly boosting demand for construction raw materials like steel and cement. Second, the rate-cut cycle significantly lowers borrowing costs for heavy-asset companies, making raw material stocks, as typical heavy-asset industries, the biggest beneficiaries. Additionally, in a rate-cut environment, safe-haven assets like gold become more attractive—due to declining bond yields, investor demand for gold will inevitably rise. Lastly, geopolitical shifts may enhance the competitiveness of US commodities globally, further benefiting local raw material companies. Valuation-wise, current P/E ratios for raw material stocks remain reasonable, with room for growth.

Key Focus: ExxonMobil (XOM)

As the largest oil company in the US, ExxonMobil is undergoing an important strategic transformation. The company plans to invest between $28 billion and $33 billion annually from 2026 to 2030 to expand natural gas extraction and reduce oil production costs.

What about its transformation outlook? Despite tightening global environmental regulations, political changes may provide policy support to traditional energy companies, accelerating their transformation. The company’s profitability after 2025 is expected to trend upward, making it a key raw material stock to watch.

Energy Sector ETF: SPDR Energy Select Sector ETF (XLE)

If you are concerned about risks associated with investing in a single oil company, consider this ETF composed of major US oil producers, covering the entire industry chain from exploration and refining to storage.

The overall oil industry is expected to be neutral in 2025, with no major shifts in supply-demand dynamics. However, the advantages of lower financing costs during a rate-cut cycle are also highly beneficial for capital-intensive companies. During this period, operating costs for heavy-asset companies will significantly decrease, making them attractive for inclusion in investment portfolios.

Copper Mining Outlook Bright: BHP

Global mining giant BHP has performed relatively poorly over the past two years. Although global stock markets have risen sharply due to AI demand, BHP’s stock price has not kept pace, mainly because China’s economic demand has been under pressure, leading to weak copper and iron ore prices, with rising transportation costs further squeezing profits.

However, 2025 may mark a turning point. On one hand, China has introduced multiple rounds of economic stimulus policies and is expected to continue increasing support in the new year, boosting raw material demand. On the other hand, the rapid development of the AI industry creates enormous demand for electricity, which will inevitably drive a surge in copper demand—industry forecasts even predict a “copper shortage.” With large copper reserves, BHP’s long-term prospects are worth looking forward to.

Selected Analysis of Raw Material Stocks in Taiwan

Cement Industry Turnaround: Asia Cement (1102.TW)

In recent years, the cement industry faced profit pressure due to sluggish real estate in China, but Asia Cement performed relatively resiliently, with cost control capabilities far surpassing peers like Taiwan Cement.

What are its advantages? Cost control is key. The main cost in cement production comes from coal fuel. Asia Cement employs diversified strategies, signing long-term supply contracts with Taiwan Power Company and reaching energy supply agreements with Chinese authorities. Additionally, the company has invested in Yu Min Shipping, which offers lower transportation costs compared to peers. These measures collectively ensure stable profitability.

What is the investment value in 2025? China’s real estate policies showed signs of loosening at the end of 2024, with further easing expected this year. Meanwhile, global cement supply is tightening, and prices are expected to gradually rebound, potentially leading to a bottoming out in the industry. As a top profit earner in the sector, Asia Cement is poised to lead the rebound wave and is a key target for allocation among Taiwan’s raw material stocks.

Clear Cost Advantage: Teco Steel (2006.TW)

Compared to China Steel, Teco Steel’s stock price correlation with the steel market is higher, which is why it is highlighted here. China Steel’s production costs are higher due to iron ore smelting; Teco Steel mainly melts scrap steel, giving it a more competitive energy cost structure, with limited impact from rising environmental costs.

The company mainly produces H-beams for factories and commercial buildings, with relatively stable demand. The core variable affecting profits is end-steel prices. Although steel demand is expected to recover in 2025, close attention should be paid to tariffs under the Trump administration—if international manufacturers choose to set up plants in the US, Teco Steel’s orders could be affected. Policy direction remains a key indicator to monitor.

Seven Key Indicators for Investing in Raw Material Stocks

Indicator 1: End Demand Analysis

Demand for agricultural products generally remains stable unless major natural disasters occur. Demand for industrial raw materials like cement, iron ore, and copper is closely related to infrastructure investment. China, as the world’s largest importer of raw materials, directly influences global demand through its policy orientation. Investors should closely watch whether China launches a new round of infrastructure investment plans.

Indicator 2: Supply-Side Changes

When the Russia-Ukraine war broke out in 2022, prices of grains and fertilizers surged, creating supply shortages that presented investment opportunities in raw materials. For mining investments, attention should be paid to changes in environmental regulations, major mine accidents, oilfield production halts, and other events that can cause short-term price fluctuations. Additionally, OPEC and OPEC+ production cuts also impact oil supply.

Indicator 3: Logistics and Transportation Costs

Bulk shipping is the main mode of raw material transportation, especially for iron ore and steel. The Baltic Dry Index (BDI) reflects market demand strength—when demand surges, companies pay higher freight rates to expedite shipments, causing the BDI to rise. Tracking BDI trends can help investors anticipate short-term raw material price movements.

Indicator 4: Geopolitical Risks

International tariffs and trade policies directly affect the import-export landscape of raw materials. While sourcing from the lowest-cost regions is rational, countries may impose tariffs to protect domestic industries. Investors need to monitor which products are subject to import tariffs, as this will impact the costs and profitability of related companies.

Indicator 5: Environmental Regulations Trends

Global environmental regulations are tightening, with high-carbon, high-energy-consuming industries like iron smelting and petrochemicals facing rising costs. Mining companies are also affected by environmental policies, with operational costs continuously increasing. Regulatory changes significantly impact the profitability space of raw material companies.

Indicator 6: Global Economic Cycle

Prices of precious metals are closely linked to the global economic cycle. Gold involves jewelry demand and central bank reserves, while copper and iron ore mainly depend on industrial development speed. When the economy is strong, demand and prices increase; however, there are exceptions, such as the rapid growth of the electric vehicle industry driving nickel demand, which can lead to over-extraction and price competition, harming miners’ profits. Supply-demand balance depends on current mining capacity.

Indicator 7: Interest Rates and Policies

Interest rate levels have the most direct impact on gold investment value. Quantitative easing (QE) by central banks reduces cash purchasing power, prompting central banks and financial institutions to increase gold reserves. Basel III classifies gold as a first-tier asset alongside government bonds and cash, further boosting demand in the financial sector. In a rate-cut environment, gold tends to benefit; rising interest rates are a negative factor.

Why Choose Raw Material Stocks Instead of Direct Investment in Raw Materials?

Dividend Income Provides Long-Term Stable Returns
Many raw material prices are subject to government regulation and suitable for short-term trading, but stocks of related companies can pay regular dividends, offering more stable long-term income.

Company Stock Prices Lead Market Sentiment
Raw material price movements often take time to fully realize, but stock prices of related companies tend to react earlier to industry positives, allowing investors to seize opportunities in advance.

Avoid Capital Battles and Short Squeeze Risks
Direct investment in raw materials can be vulnerable to large capital battles; historically, surges in raw material prices have often been driven by capital wars rather than supply-demand imbalances. Investing in listed companies can effectively avoid such risks.

Conclusion

As the world enters a rate-cutting cycle and China’s economic policies continue to support growth, raw material stocks are presenting important allocation opportunities. Whether through US ETFs or leading Taiwanese companies, long-term investors should pay close attention. By mastering these seven key investment indicators, investors can more confidently and precisely position themselves in the raw material stock market.