Materials Sector Under Pressure as USD Weakens: Is Now the Time to Buy?

The materials sector faces a confluence of macroeconomic and geopolitical headwinds, with the U.S. dollar's weakening trajectory playing a central role in shaping commodity pricing dynamics. While a weaker dollar typically alleviates some pressures on materials producers, the sector remains in a tug-of-war between cyclical risks and long-term structural tailwinds. Here's why investors should parse this complexity—and whether the current environment presents a buying opportunity.

The USD's Decline: A Double-Edged Sword for Materials

The U.S. Dollar Index (DXY) has fallen nearly 8% since early 2025, hitting 97.87 by mid-July. This decline reflects a broader easing of global dollar liquidity and reduced demand for the currency amid falling U.S. interest rates and trade policy uncertainties. While a weaker dollar generally makes U.S. exports more competitive, it also depresses the dollar-denominated prices of commodities like copper and steel, which are critical to the materials sector.

The inverse relationship between the USD and commodity prices is stark: . Copper, often dubbed “Dr. Copper” for its predictive power over economic activity, has dipped 12% year-to-date as the dollar weakened, even as demand for EV batteries and renewable infrastructure remains robust. This disconnect highlights the sector's vulnerability to macroeconomic noise—yet also underscores its potential upside if demand fundamentals ultimately dominate pricing.

Three Reasons to Consider the Materials Sector Now

1. Long-Term Supply Constraints Favor Commodity Bulls

Despite short-term price weakness, copper's supply-demand imbalance remains acute. Aging mines, environmental regulations, and underinvestment in new projects have kept production growth stagnant, even as demand for EVs and green energy infrastructure surges. Companies with high-quality reserves and low-cost operations—such as Teck Resources (TECK) and First Quantum Minerals (FMG)—are positioned to benefit from eventual price normalization.

2. China's Stimulus Could Ignite a Demand Surge

China's economy, the world's largest consumer of materials, is expected to rebound modestly in 2025 as Beijing rolls out infrastructure projects and property market reforms. A pickup in construction and manufacturing activity would boost demand for steel, cement, and copper. shows a strong correlation, suggesting materials stocks could outperform if Beijing's stimulus gains traction.

3. Sector Valuations Are Near Cyclical Lows

The Fidelity Select Materials Portfolio, which holds stakes in TECK, FMG, and specialty players like Linde (LIN) and Ecolab (ECL), trades at a 30% discount to its five-year average P/E ratio. This compression reflects fears over trade wars and dollar volatility—but also creates a margin of safety for investors willing to bet on a cyclical rebound.

Risks to Consider

• Trade Policy Uncertainty: Proposed U.S. tariffs on Chinese imports could disrupt supply chains and depress demand for materials like steel.
• Geopolitical Volatility: Tensions with BRICS-aligned nations (e.g., Russia, Brazil) could lead to commodity supply shocks.
• Dollar Rebound Risks: While the DXY's downtrend is entrenched, a sudden Fed policy shift or inflation spike could reverse its course.

A Playbook for Selective Investors

• Focus on Copper Plays: Prioritize firms with low production costs and exposure to green energy demand, such as Southern Copper (SCCO) and Freeport-McMoRan (FCX).
• Add Defensive Exposure: Balance commodity sensitivity with “all-weather” names like Ecolab (ECL), whose water-treatment services are less cyclical.
• Avoid Export-Heavy Firms: Companies reliant on Chinese demand (e.g., steelmakers) face dual risks from tariffs and a weaker yuan.

Final Take

The materials sector is undeniably in a holding pattern, with its fate tied to the dollar's next move and China's economic health. Yet for investors with a 3–5-year horizon, the current environment offers an entry point to capitalize on structural tailwinds in copper and specialty chemicals. While near-term volatility is inevitable, the sector's valuation discounts and long-term fundamentals suggest now is a reasonable time to buy—provided investors stay selective and patient.