Raw material costs are influenced by supply, demand, availability, extraction difficulty, and purity. The commodity market is dominated by major producers who transform raw materials into desirable products. Labor costs in developing countries are controversial.
The cost of raw materials is almost constantly changing, and this is due to the intersection and overlapping of many different factors. Supply and general availability are often the most important and concern the ease of finding the material and the quantity of it present in a given place. Availability is usually not consistent across the global market. Demand is another key factor and is often best expressed as a ratio of interested buyers to available supply. When there is plenty of availability, high demand can help keep prices down, as it can encourage competition. When there’s not much to go with coupled with high demand, prices often skyrocket. Other factors relating to the material itself also play a part, including how difficult it is to extract from the earth and prepare, as well as its overall purity.
Understand the commodity market in general
Raw materials are those that are mined or otherwise extracted from the earth or its waters. Most of the time, the commodity market is dominated by major producers and refiners who are able to transform these commodities, such as crude oil or precious stones, into desirable and useful things as raw materials. In most cases, raw materials don’t look much like what they become when sold to the public. Getting them ready for market often takes a lot of work and a lot of elaboration and refinement.
Supply and availability
Raw materials are constantly affected by the supply, especially materials such as metals and stones which take millions of years to form and a lot of science and research to properly extract. Availability is no less essential for crops that can be grown, such as logs and food materials. Weather is often of the essence here, because a stormy year can produce very few crops or make it difficult to raise livestock. Situational events such as political unrest, rebellions, and wars typically also affect the supply of raw materials, as workers may earn less, funding for growth and processing may disappear, or, as is often the case, materials will be offset directly in the field of battle.
Request
Demand also has a big impact, although it can work both ways, often in conjunction with availability. Materials that are in high demand but also widely available are often less expensive due to competition. Competing merchants often use price incentives to motivate sales, which can reduce the total cost of raw materials. High demand coupled with a shortage, on the other hand, often causes prices to rise.
The popularity of some materials also affects demand. For example, if there is a popular shirt made from a certain fabric, the demand for that fabric will increase until the shirt becomes more popular.
Difficulty of extraction
The ease of acquisition also affects the cost and total price of materials as simpler methods of harvesting and extraction usually require less machinery, less labor and, more generally, lower overhead costs. Labor costs are perhaps one of the most controversial aspects of the international commodity market. Much of the world’s mining and quarrying is located in developing countries, and manufacturing and refining companies often do the majority of work there as well, usually because labor is available much cheaper.
Critics often raise concerns that the people who work in these mines or refineries are not receiving a fair wage and may not be working to standards that would be considered safe if the operations took place somewhere like Europe or the United States. However, if materials companies provided all the guarantees required by most developed countries and paid workers on a par with their Western peers, the cost to the consumer would rise dramatically.
Purity
Most raw materials are classified according to their purity. This is determined by how many other materials are combined with the main component; for example, iron occurs naturally with impurities such as carbon, magnesium and sulfur. For crops, logs, food, and textile materials, the purity metric is usually called quality and is determined by how good the material is, and can also incorporate aspects such as the material’s softness, color, or taste. The fewer the impurities, the more valuable the good is in most cases. Sometimes manufacturers can remove impurities or improve quality before bringing the material to market, but this often increases the total cost.
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