Investor interest in basic materials was tepid in 2012. But that’s likely to change this year.

In 2012, the US endured a full year of political uncertainty, thanks to the election as well as contentious battles over the so-called fiscal cliff; and European economies failed to grow as the Continent’s debt crisis continued to simmer. Demand for everything from fertilizer to plastics fell as consumers and businesses put off spending.

Problems in the US and Europe spilled over into the emerging markets, forcing a slowdown in Chinese manufacturing and exports, dampening that country’s otherwise insatiable demand for raw materials. This in turn affected other major commodity-producing countries, such as Brazil and Australia, which began to experience a slowdown of their own.

Despite these headwinds, the global economy began to show signs of positive momentum in the fourth quarter of 2012.

After China’s once-a-decade political transition toward the end of last year, the country’s manufacturing data began to improve. In November, China’s Purchasing Managers Index (PMI) hit a seven-month high of 50.6, indicating moderate expansion; and that reading held steady into December. Industrial profits in the country also held steady, and electricity consumption grew, all pointing to a firming in the Chinese economy.

Meanwhile, our own PMI showed that the US manufacturing sector posted a decent rebound in December, to 50.7, the third month of expansion in the past seven.

No one can be sure we won’t have more global economic turmoil in 2013, but the likelihood is one of improvement. As manufacturing and overall industrial production continue to rise around the globe, demand for everything from copper and tin to coal and crude oil should accelerate.

Back to Basics

A good way to gain exposure to basic materials is through iShares Dow Jones US Basic Materials (NYSE: IYM), an exchange-traded fund (ETF) that provides instant access to a basket of 62 stocks in a wide range of subsectors—from chemicals and metals to mining and forest products.

In the chemicals space, IYM’s top holdings include E. I. du Pont de Nemours & Co (NYSE: DD) and Mosaic Co (NYSE: MOS).

Du Pont is perhaps best known for nylon, Lycra and Kevlar, all of which it invented. But it also makes a variety of chemicals used in industry and manufacturing. Such inputs are often among the first beneficiaries of a pickup in industrial production.

Du Pont also has a growing presence in agricultural chemicals. So like fertilizer company Mosaic, it should benefit from rising demand for fertilizer and pesticides, as farmers work to maximize production after last year’s drought.

Other names such as Alcoa (NYSE: AA) and Cliffs Natural Resources (NYSE: CLF) will benefit from resurging demand for aluminum, iron ore and metallurgical coal as economies continue to rebound. Supplies of all these materials are currently tight, since the pace of mining and smelting slowed significantly the past few years. That means prices should be on the rise for most of 2013.

Over the past five years, IYM returned slightly less than 1 percent annually. But it gained 10.5 percent in 2012, and we expect an even stronger performance in 2013.