Material Costs

Raw Material Costs: Forces Behind the Price

Ever wondered why prices for metals and raw materials seem to fluctuate like a roller coaster? One moment, aluminum is affordable, and the next, copper prices skyrocket. It’s all part of a complex global dance shaped by supply chains, market speculation, and forces far beyond our control.

Let’s break it down - what goes into raw material costs, how different categories behave, and where things might be headed.

What Determines the Price?

At its core, the price of raw materials is influenced by two primary forces:  

• Production Costs: Mining, transportation, and energy all set the base price. If a material costs more to produce, it’ll cost more to buy.  
• Supply vs. Demand: When demand is high and supply is tight, prices rise. If there’s an oversupply, prices drop.  

Short-term price swings can come from unexpected events - natural disasters, new factories opening, or even market speculation by investors. Long-term trends are shaped by global events like pandemics, wars, tariffs, inflation, and economic downturns. Metals don’t behave like crops, which are affected by seasonal cycles. Instead, metal prices have steadily risen over the years.

Types of Raw Materials

Base Metals: The Workhorses

Think aluminum, brass, copper, steel - these are the backbone of industry. Priced in USD per metric ton, they move with global manufacturing trends. Since they are heavily traded in large quantities, their pricing tends to be more stable.

Noble Metals: The Fancy Ones

Gold, silver, platinum, palladium—often called precious metals. These are rarer and priced in troy ounces. While they’re commonly used in jewelry or stored in central banks, they also play critical roles in electronics thanks to their ductility, electrical conductivity, corrosion resistance, and durability.

Oil: The Hidden Factor

Oil is the only non-metal on this list, but its impact on raw material production is enormous.  

• Mining equipment runs on petroleum-based fuel.  
• Ore is transported via trucks, trains, ships, and planes - all powered by oil.  
• The smelting and refining processes require energy, and oil still accounts for 30% of the world’s electricity generation.  

If oil prices rise, the cost of mining and refining metals goes up too.

Where Are Prices Headed?

Base Metals: A Market in Flux

Base metals (aluminum, copper, nickel, and steel) are heavily tied to global industrial trends. Their prices are expected to decline overall due to shifting economic conditions and evolving supply chains. The outlook for base metals remains mixed, with some materials facing price declines due to slowing global demand, while others may see stabilization or recovery based on production controls and supply chain shifts. 

China’s Slowing Economy

China has long been the largest consumer of base metals, but its economic deceleration is reshaping global demand.  

• Manufacturing growth is cooling, leading to reduced metal consumption.  
• Government stimulus efforts may create short-term price stabilization, but long-term demand remains uncertain.  
• Iron ore, which is critical in steel production, is forecasted to drop 13% in price through 2025 and another 7% in 2026 due to lower Chinese demand.  
• Aluminum, the second-most produced metal after iron, could see a 10% price dip in 2025 and 3% in 2026 as China’s construction sector slows.

Indonesia’s Grip on Nickel

Nickel, widely used in batteries and stainless steel, has faced a dramatic 30% price drop in recent years due to over production. However, Indonesia - the world's largest nickel producer - has begun tightening control over exports.  

• Indonesia accounts for 60% of global nickel production, making its policies a major factor in pricing.  
• Stricter export quotas and investment incentives for domestic processing may stabilize prices.  
• By 2026, nickel prices could recover slightly, reversing some of the recent downturn.

Looking Ahead: 

• Iron Ore & Steel: Prices are expected to drop by 13% in 2025 and another 7% in 2026 as China’s industrial slowdown reduces demand.  
• Aluminum: Demand declines, particularly in construction, could lead to a 10% price drop in 2025, followed by a smaller 3% dip in 2026.  
• Nickel: After a 30% decline in previous years, nickel may recover by 2026 as Indonesia tightens export controls, restricting global supply.  
• Copper: While demand is rising for power grids, electric vehicles, and data centers, large stockpiles from pre-2024 tariff buying surges may offset price gains.

Overall, China’s economic slowdown remains the key factor in price shifts, while Indonesia’s control over nickel production may shape recovery trends. If global manufacturing stabilizes, some metals may see modest rebounds. Otherwise, the downward price trends could continue.  

Noble Metals: Staying Steady - For Now

Gold, silver, and platinum had a strong 2024, with silver reaching a 12-year high. These metals play a critical role in electronics manufacturing, and their pricing trends directly impact component costs. 

Gold: While most gold is used in jewelry or stored in government central banks, 6% was used in electronics during 2024 - up 12% from previous years.  

Silver: Manufacturing relies heavily on silver, with 29% of the silver supply going into electronic components and 12% into photovoltaics (solar panels).  

Platinum & Palladium: These metals are key materials in thick-film resistors and multilayer ceramic capacitors (MLCCs) and can serve as cost-effective replacements for gold in certain applications.  

Looking ahead:

• Prices are expected to remain high but stable through 2025.  
• A decline might occur in 2026, depending on industrial demand.  
• Gold prices may rise further if geopolitical uncertainty and market speculation increase.  
• If industrial activity slows, silver and platinum could see price drops due to lower demand.  

Oil: A Global Wild Card

Oil prices drive inflation and economic shifts, but the market is anything but predictable.  

• OPEC controls 40% of the world’s oil, shaping supply and pricing.  
• Geopolitical events (e.g. wars, trade embargoes) can disrupt availability.  
• Advanced economies are shifting away from oil, but India and China are increasing their consumption, keeping global demand strong for now.  
• By 2030, clean energy trends may outpace demand, leading to lower oil prices -assuming no major global shocks.

Final Thoughts

The price of raw materials isn’t just about availability - it’s shaped by global economics, industrial demand, and geopolitical shifts. While base metals are experiencing a downward trend, noble metals remain steady, and oil remains unpredictable, each of these factors plays a critical role in your costs and bottom line.

At TTI, we are committed to your business’s success and strengthening our partnership. Our goal is to provide reliable insights and strategic support, ensuring you have the resources to navigate these market changes with confidence.