Why Raw Raw Material Costs Are Rising in 2025
Everything is on the rise with the cost of living prices soaring. Have you noticed your groceries being that little bit higher or that cheeky takeaway around the corner has now gone over the fifteen dollars it used to be? You may wonder why that is, and the answer? Raw material costs are going up worldwide.
Global raw materials such as steel, copper, crude oil and lumber have seen a sharp increase in 2025, meaning more pressure on your manufacturing costs, and a sharp decrease in your business’s profits.
If your business relies on having a steady supply of raw materials, dealing with this increase in costs can be a very tough challenge. This guide aims to give you a greater understanding of how and why these costs are rising as well as to give you the tools necessary to combat this issue as effectively as possible.
The Issues You Face
There is no one answer to this issue. Rising raw material costs are a “Wicked Issue” meaning that it is very complex, has many interconnected causes, and its outcomes are difficult to predict. The best way to handle it is to understand the drivers behind the rise in costs so that you can adjust your sourcing strategies accordingly and keep growing your operations.
Demand Skyrockets After Covid
The global economy is well and truly on the way to fully bounce back from the global effects of COVID-19, with the International Monetary Fund (IMF) projecting a growth rate of 4.2% for the year 2025.
Global manufacturing is a big part of this and has resulted in stronger demand for products and stronger infrastructure, further driving up the cost of raw materials. As demand outpaces the ability of some businesses to supply, this puts a premium on more sought-after materials which have directly impacted the overhead costs of many businesses.
China is at the forefront of trying to meet this demand, as the world’s largest manufacturing hub, it produces over 30% of the world’s manufactured goods. This is most apparent in their infrastructure and Electric Vehicle production. Materials like copper, lithium and other rare earth metals have had a drastic increase in demand, which has had a direct impact on the production costs of many businesses that compete in the same area.
Global manufacturing is a big part of this and has resulted in stronger demand for products and stronger infrastructure, further driving up the cost of raw materials. As demand outpaces the ability of some businesses to supply, this puts a premium on more sought-after materials which have directly impacted the overhead costs of many businesses.
China is at the forefront of trying to meet this demand, as the world’s largest manufacturing hub, it produces over 30% of the world’s manufactured goods. This is most apparent in their infrastructure and Electric Vehicle production. Materials like copper, lithium and other rare earth metals have had a drastic increase in demand, which has had a direct impact on the production costs of many businesses that compete in the same area.
Political Tension and The Tariff War
Since 2018, the US-China trade war has escalated with both parties putting high tariffs on key raw materials such as steel and aluminium in 2025. The constant retaliation between the two countries shows no sign of slowing down, as such, this has created major uncertainty in the global market. Due to this, many companies have started searching for alternative suppliers and have started shifting operations to other regions in Asia, which comes with an increased cost due to higher logistics and set-up expenses.
The Ukraine-Russia conflict has meant many countries have placed sanctions on Russian oil and gas, cutting off one of the world’s largest suppliers of energy. This has resulted in higher fuel costs when transporting as well as increased costs of electricity and gas, which means it is more expensive to run production facilities.
The Ukraine-Russia conflict has meant many countries have placed sanctions on Russian oil and gas, cutting off one of the world’s largest suppliers of energy. This has resulted in higher fuel costs when transporting as well as increased costs of electricity and gas, which means it is more expensive to run production facilities.
Sustainability, But at What Cost?
The global shift towards becoming more sustainable has affected prices in two ways,
As governments and industries push towards becoming more environmentally friendly, manufacturers are under more pressure to ensure their supply chains are transparent.
As governments and industries push towards becoming more environmentally friendly, manufacturers are under more pressure to ensure their supply chains are transparent.
- Many manufacturers are trying to reduce their carbon footprint by switching to energy-efficient lighting, improving their waste management systems, using more eco-friendly materials and switching to more carbon-friendly modes of transporting goods. All of these switches are essential in today’s world, and it is what customers want, but there is no denying that it does increase costs for businesses.
- This shift also results in a higher demand for materials associated with green sectors such as PV glass in solar panels, or as mentioned above, lithium and other rare earth metals, which are essential for producing electric vehicles. Recent trends indicate that this demand will continue to go up and as these finite sources dwindle, prices will only keep increasing.
Global Shipping Crisis
The constant global disruptions caused by increased fuel prices, trade wars and labour strikes have resulted in the perfect storm for global logistics. Port congestions worldwide have reported that even when operating at near full capacity, some vessels still get delayed when trying to load and unload cargo. As a result of this, shipping costs have nearly doubled in the last decade, with businesses being forced to pay a premium to secure placements for their shipments.
To combat this, some businesses have turned to air freight as an alternative to shipping. However, this comes with its own sets of challenges as the costs for air are significantly higher than shipping due to its limited cargo space.
To combat this, some businesses have turned to air freight as an alternative to shipping. However, this comes with its own sets of challenges as the costs for air are significantly higher than shipping due to its limited cargo space.
How Do You Manage The Impact of Rising Costs?
While rising costs are unavoidable, you can take steps to mitigate their negative impacts. Some ways include,
Reducing Waste and Improving Operational Efficiency
Businesses almost always overlook the amount of excess raw materials that are lost due to inefficient design or excessive packaging. By analysing the areas in which this waste occurs, you can move to reduce scraps and improve your resource efficiency.
Another way to reduce costs is to look at your warehouse management system, by improving operation efficiency, you can not only reduce the amount of time your stock sits on the shelf but also ensure a quick turnaround so your customers get their products faster.
Another way to reduce costs is to look at your warehouse management system, by improving operation efficiency, you can not only reduce the amount of time your stock sits on the shelf but also ensure a quick turnaround so your customers get their products faster.
Diversifying Shipping Routes and Managing Suppliers
Diversifying shipping routes and having multiple logistics providers can strengthen your supplier chain's resilience. If one or more ports are blocked, you can still keep up with demand by using alternative transport routes.
If you source from China, chances are the recent tariffs have you looking at alternative options. Truth is you're not alone, with many businesses adopting a “China+1” rule which helps protect them from future supply chain disruptions. Many companies have started looking at other Southeast Asian countries to diversify into, with Vietnam being the main winner. Their country has invested heavily in infrastructure to help support its increasing capacity for international manufacturing while achieving international certifications to adhere to their clients' needs.
Good supplier relationship management is too important to secure beneficial long-term contracts that can help keep costs stable and protect you against sudden price increases. It would be advisable for you to diversify your suppliers so as not to be overly reliant on one.
If you source from China, chances are the recent tariffs have you looking at alternative options. Truth is you're not alone, with many businesses adopting a “China+1” rule which helps protect them from future supply chain disruptions. Many companies have started looking at other Southeast Asian countries to diversify into, with Vietnam being the main winner. Their country has invested heavily in infrastructure to help support its increasing capacity for international manufacturing while achieving international certifications to adhere to their clients' needs.
Good supplier relationship management is too important to secure beneficial long-term contracts that can help keep costs stable and protect you against sudden price increases. It would be advisable for you to diversify your suppliers so as not to be overly reliant on one.
Lock In Pricing and Building Resource Reserves
If you operate in an industry where raw material goods are constantly fluctuating, locking in long-term contracts can help protect against rising costs. You could also consider utilising a hedging strategy, such as commodity future contracts, which can help protect you against any price spikes.
Businesses are shifting from a just-in-time model to a just-in-case model, where inventory levels are maintained at a level to absorb any possible supply chain shocks. Building strategic reserves of any key materials can help your business operate and keep up with demand even when supply chains are disrupted and your competitors fall behind.
Businesses are shifting from a just-in-time model to a just-in-case model, where inventory levels are maintained at a level to absorb any possible supply chain shocks. Building strategic reserves of any key materials can help your business operate and keep up with demand even when supply chains are disrupted and your competitors fall behind.
Why Should You Use a Sourcing Company?
Managing rising raw material costs is complex, but working with a professional sourcing company like us at The Sourcing Co. can help simplify the process and protect your profit margins. We have strong relationships with trusted suppliers and logistics providers, allowing us to be able to secure competitive rates for you and ensure reliable delivery even during market disruptions. Our expertise in supplier negotiation, production management, and shipping means you can reduce costs and avoid supply chain delays without sacrificing product quality.
By partnering with us, you gain access to cost-saving opportunities, strategic sourcing insights, and a streamlined production process. Our team handles everything from supplier contracts to quality control and logistics, so you can focus on growing your business. Take control of your costs — get in touch with us today to strengthen your supply chain and to better protect your company in this volatile market.
By partnering with us, you gain access to cost-saving opportunities, strategic sourcing insights, and a streamlined production process. Our team handles everything from supplier contracts to quality control and logistics, so you can focus on growing your business. Take control of your costs — get in touch with us today to strengthen your supply chain and to better protect your company in this volatile market.