Raw materials are the basic natural resources that firms process into other products: crude oil and natural gas, metal ores, timber, sand and stone, cotton, rubber, grain and many more. They come from mining, drilling, farming, forestry and fishing, and they are the first link in almost every supply chain. In business accounts they are part of a firm's direct material costs; in economics they belong with land, the factor of production that covers natural resources.
Many raw materials are traded worldwide as a commodity, with prices set on exchanges and in large wholesale markets. They are distinct from capital goods, which are used again and again, because a raw material is used up or transformed when a product is made. Governments increasingly treat some of them, labeled "critical raw materials", as a strategic concern.
Raw materials in plain terms
Think of a bakery's flour, sugar and eggs. They arrive in sacks and cartons and leave as cakes. Without them nothing gets made, and if the price of flour doubles, the baker either charges more for bread or earns less.
A country's industry works the same way, only with iron ore turned into steel, oil turned into plastics and fuel, and cotton turned into shirts. When raw materials get scarce or expensive, the effect ripples through every business that uses them, and eventually to the prices shoppers pay.
Types of raw materials
- Energy. Crude oil, natural gas, coal and uranium, used for fuel and as chemical feedstocks.
- Metals and minerals. Iron ore, copper, aluminum (from bauxite), nickel, lithium, rare earth elements, potash and phosphate.
- Agricultural. Grains, oilseeds, cotton, wool, natural rubber, coffee and cocoa beans, produced by agriculture.
- Forestry and others. Timber and pulp, as well as sand, gravel and limestone used in construction.
Economists also distinguish renewable materials, which can regrow, from non-renewable ones such as minerals and fossil fuels, whose extraction raises questions about depletion and economic rent.
Prices and the wider economy
Raw material prices are set by supply and demand and tend to swing more than prices of finished goods. Supply is often inelastic in the short run because new mines, wells and plantations take years to develop. Producers and users manage the risk with futures and other derivatives, and prices tend to move in long waves known as the commodity cycle.
Because they enter so many products, raw material costs feed into producer prices and then into inflation. A sharp rise in oil or food prices can act as a supply shock, raising costs and cutting output at the same time, as in the 1970s. For exporting countries, raw material prices drive the terms of trade, government revenue and the exchange rate. UNCTAD counts a country as commodity-dependent when commodities make up more than 60 percent of its merchandise export value; in its 2025 report, 95 of 143 developing countries met that test for 2021 to 2023. Heavy reliance on raw material exports is linked to the resource curse, in which volatile revenues and weak diversification hold back long-term growth.
Critical raw materials and supply security
The energy transition and digital technology have raised demand for minerals such as lithium, cobalt, nickel, graphite, copper and rare earths, used in batteries, electric motors, wind turbines and chips. Production and especially refining of several of these are concentrated in a few countries, with China dominant in processing many of them. That concentration has turned raw materials into a question of industrial policy and economic statecraft.
- Export controls. China introduced licensing requirements for exports of gallium and germanium from August 2023 and has since extended controls to other materials and technologies.
- European Union. The Critical Raw Materials Act (Regulation (EU) 2024/1252), in force since May 2024, sets 2030 benchmarks: extraction of at least 10 percent, processing of 40 percent and recycling of 25 percent of the EU's annual consumption of strategic raw materials, with no more than 65 percent of any one of them coming from a single third country.
- United States and others. Governments have used critical-mineral lists, tax credits, stockpiles and supply agreements with allied producers.
Supporters see these steps as insurance against coercion and disruption. Critics warn that subsidies and trade barriers raise costs, risk retaliation and may slow the very energy transition they aim to secure. The debate echoes older arguments about mercantilism and the gains from comparative advantage in open trade.