Navigating the New Reality in Basic and Industrial Materials

Tensions between Western economies and China and Russia are both disrupting global trade relationships and creating new ones. The war in Ukraine, for instance, has challenged competitiveness across several sectors in Europe. This has opened up opportunities for producers in other parts of the world to step in and access new markets.

Over the past decade, several governments have increased tariff barriers against imported materials. And recently, the EU has begun implementing new climate and environmental, social, and governance (ESG) regulations on traded goods. The economic impact of such measures is expected to be heaviest in China and India. Companies will need to take a clear view of the new trade complexities and reconfigure their value chains accordingly.

Technological advances, government policies, and changing consumer tastes are driving demand for certain materials at the expense of others. The AI boom, for instance, is boosting the use of silicon for semiconductor chips. And the energy transition will curb demand for fossil fuels while increasing the need for rare earth elements. Basic and industrial materials companies must anticipate such trends to take advantage of new opportunities.

Global competition for key inputs—including clean energy for decarbonization initiatives—is set to grow, leaving supplies more costly with tighter availability. Aggressive extraction has already depleted accessible, high-quality reserves of natural resources, while upstream players are reluctant to spend more on materials and processing activities. Materials companies will need to think hard about the impact of rising input costs on their future product offerings.

Faced with mounting pressure to become more sustainable, materials companies are switching to eco-friendly feedstocks and pursuing greater industrial innovation. In tandem, end users are demanding more durable products (resulting in less waste) and greater recycling (leading to changes in manufacturing processes). The green winners will be companies that can quickly bring new technologies into production.

Many sectors in developed economies are facing a wave of experienced employees entering into retirement. These workers will be hard to replace, particularly in aging societies. Among US materials industries, low pay, job insecurity, and the lure of technology-focused white-collar roles will make it even harder to recruit and retain staff. Companies will need to improve their value propositions to meet the higher career expectations of young talent.