High raw material costs: 7 practical strategies to mitigate the impact

Key takeaways

June 2026 – Manufacturers have spent the past few years learning to operate in a world where disruption is no longer the exception. It is the baseline. High energy prices, shifting trade policy, and unpredictable raw material costs now shape day-to-day decisions across the supply chain, from the shop floor to the boardroom. 

The good news is that volatility, while uncomfortable, rewards the prepared. Organizations that have built agile, responsive operations are far better placed to absorb shocks, protect margins, and deliver to promise. Below, we look at what is driving raw material costs today, which industries are most exposed, and seven practical strategies that help manufacturers turn cost pressure into a source of competitive advantage. 

Raw material costs: a new kind of pressure

The figures below reflect the most recent data available at the time of writing. 

Trade policy now sits at the center of the raw material cost conversation. Where energy spikes and pandemic-era supply shocks once dominated the picture, the defining pressure today is the uncertainty created by tariffs and a fragmenting global trade system. 

The cost picture has two layers, and they pull in different directions. At the commodity level, there is some easing. The World Bank’s October 2025 Commodity Markets Outlook projects global commodity prices falling around 7% in 2026, with food prices down a further 0.3%. That easing is relative rather than a return to normal, however. Despite the recent declines, commodity prices remain above pre-pandemic levels, projected to be 23% higher in 2025 and 14% higher in 2026 than in 2019. 

The second layer is what manufacturers actually pay, and here costs are still climbing. Tariffs and freight surcharges sit on top of the underlying commodity price, which is why the landed cost of an input can rise even as the raw commodity eases. Manufacturers expect input costs to rise by an average of 5.4% over the coming year, with energy, chemicals, and metals leading the way. 

What is driving raw material cost pressure? 

Raw material costs are ultimately shaped by supply and demand, and by the cost of getting materials out of the ground, through production, and to where they are needed. When demand outstrips supply, prices rise. When the cost of energy, transport, or compliance goes up, those costs flow straight into the price of the materials themselves. Today, several forces are working on those fundamentals at once. 

Tariff escalation 

Tariffs are now the most frequently cited financial pressure for manufacturers. Rising input costs are the standout concern, named by 86% of manufacturers in a recent Manufacturers Alliance survey, with steel and aluminum among the most affected materials. United States tariffs on steel and aluminum doubled to 50% in 2025, reshaping global trade flows and putting pressure on industries from automotive and construction to manufacturing and energy. Beyond the materials themselves, manufacturers also report rising compliance and legal costs and added operational expense from the supply chain disruption that tariffs create. 

Trade fragmentation and policy uncertainty 

The harder problem is not the level of any single tariff but the unpredictability around it. Trade is fragmenting into competing blocs, and governments are expected to keep using tariffs as a strategic and industrial tool rather than wind them down. Supply chain concerns among trade professionals have roughly doubled year over year, and a clear majority now cite tariff volatility as the single most impactful regulatory change they face, with many treating it as permanent rather than temporary. 

That uncertainty discourages investment and disrupts long-standing supplier relationships. UNCTAD has observed that the uncertainty itself often costs firms more than the tariffs do, as companies divert time and capital into stockpiling, rerouting shipments, and constantly renegotiating supplier agreements. That is planning bandwidth that could otherwise go toward efficiency, capability building, and the kind of step-change improvement that strengthens an operation. 

Shipping and logistics disruption 

Geopolitical tension continues to ripple through critical shipping routes. The escalation of conflict in the Middle East in early 2026 put renewed pressure on one of the world’s most important corridors for oil and liquefied natural gas. Major carriers rerouted vessels around the Cape of Good Hope, adding significant time to transit schedules. War-risk insurance premiums climbed, and the cost impact showed up quickly in raw material prices. Official data recorded crude energy products up 41.1% and plastic resins up 15.4% in March 2026, with aluminum rising as Middle Eastern supply was disrupted. 

Climate and environmental factors 

Extreme weather and the broader energy transition remain live cost drivers. Weather events affect agricultural yields and, in turn, the price and availability of food and packaging inputs. At the same time, environmental compliance is becoming a direct line item rather than a future consideration. Mechanisms such as carbon border adjustments are beginning to influence the cost of importing carbon-intensive materials, and companies investing in cleaner production are factoring those costs into their sourcing decisions today. 

The events of the early 2020s, including the COVID-19 pandemic and the war in Ukraine, taught manufacturers how quickly supply chains can seize up. Those lessons remain relevant today. What has changed is the primary source of disruption, which now comes less from health and conflict shocks and more from trade policy and geopolitical risk. 

Which industries are most impacted by rising raw material costs?

Most manufacturers feel the impact of raw material costs because they depend on commodities as the inputs to everything they produce. A few sectors are particularly exposed in the current environment. 

Chemicals

Chemical producers are unusually exposed, because feedstock alone makes up 60 to 70% of production cost, tying their economics directly to the price of oil and natural gas. That exposure has been severe of late. Disruption to naphtha and feedstock flows through the Strait of Hormuz turned what was projected to be a year of oversupply into one of the sector’s most severe supply crises, cutting operating rates and driving sharp price increases across the value chain. Because chemicals feed into plastics, packaging, coatings, fertilizers, and synthetic fibers, these increases ripple outward into many other industries.

Packaging

Packaging relies on plastics, paper, cardboard, and metals. These materials remain sensitive to energy costs and to the freight surcharges that have followed recent shipping disruptions. For food and beverage producers, packaging cost movements compound the pressure already felt on their core inputs. 

Food and beverage

This industry is sensitive to the prices of agricultural commodities such as wheat, corn, sugar, coffee, and dairy. While headline food prices have been easing, individual inputs are moving in different directions, which makes input-by-input monitoring essential. Energy and packaging costs add further pressure, since transportation, processing, and packaging all sit on the energy price curve. 

Automotive

The automotive sector depends heavily on steel, aluminum, copper, and rubber, several of which are directly in the path of recent tariffs. Copper is a useful example of how complex the picture has become. Demand is rising for power grids, electric vehicles, and data centers, yet large stockpiles built up ahead of tariffs may offset some of the upward price pressure. The net effect is hard to forecast, which is exactly the kind of uncertainty that rewards strong planning. 

Energy

The cost of power is relevant to every company and every industry. The energy sector remains a clear illustration of how geopolitical events translate into raw material costs, since shipping disruption and conflict feed directly into the price of crude oil, gas, and the materials that depend on them. 

Seven practical strategies to manage raw material cost pressure 

Cost pressure is not something to be endured passively. With the right approach, manufacturers can mitigate the impact, protect margins, and build the kind of operational excellence that delivers step-change results. These seven strategies provide a practical starting point. 

1. Conduct financial modeling of all raw material inputs

When procurement teams model the full cost of every raw material input, they create wider hedging opportunities and reduce the risk that price swings catch them off guard. The process involves analyzing and projecting acquisition and usage costs across a range of scenarios. It should also build in risk analytics, so that supply disruptions, geopolitical events, and regulatory changes, such as new tariffs, are factored into the picture from the start. 

2. Engage in strategic sourcing

Strategic sourcing helps companies secure the most cost-effective and reliable sources of supply by evaluating suppliers on quality, reliability, pricing, and stability. Today, this work has to include tariff exposure mapping. Deep supplier visibility, including sub-tier mapping, is now essential for understanding where tariff exposure lies and anticipating upstream disruptions before they reach your operation. 

Nearshoring, which means partnering with suppliers within your immediate region, gives a company more control over its supply chain and tends to keep prices more consistent. It is worth approaching with care, however. Many companies have moved out of one region only to find that the obvious alternatives are filling up with capacity. Diversifying the supplier base, building in redundancy, and reviewing suppliers for resilience as well as cost and quality remain the surest ways to reduce vulnerability. 

3. Create an agile supply chain

An agile supply chain improves inventory management, reduces holding costs, minimizes stockouts, and cuts waste. Combined with greater visibility, it enables faster decisions, quicker problem-solving, and stronger relationships across the network. Manufacturers most exposed to tariffs are leading the way here by prioritizing supplier diversification, regional sourcing, and AI-enabled visibility tools, which have emerged as top supply chain priorities. The goal is an operation that can sense disruption early and respond before it becomes a crisis.  

4. Explore manufacturing process changes

Alongside supply chain optimization, companies can adapt their manufacturing processes to reduce reliance on specific raw materials or to switch to alternatives that are more cost-effective or more readily available. Process redesign, smarter material usage, and waste reduction all help offset rising input costs without compromising on quality. 

5. Conduct scenario planning

Manufacturers should monitor market trends, global events, and the factors that move raw material costs, then translate that information into scenario planning. In the current environment, this has to include tariff scenario modeling, not just commodity price scenarios. Proactive planning is the antidote to reactive paralysis. When so many companies are stuck in a wait-and-see posture, the organizations that map out their options in advance are the ones that keep moving while others hesitate. 

6. Focus on continuous improvement

Continuous improvement is where resilience is built and sustained. A continuous improvement approach streamlines processes for greater flexibility and adaptability, reduces cost and waste, and pushes an organization toward operational excellence. Just as importantly, it gives the power back to your teams to self-solve and improve performance one step at a time, so that the organization gets stronger with every cycle rather than depending on top-down fixes. This is the capability that turns volatility from a threat into an opportunity, and it is the foundation of lasting step-change results. 

7. Adopt sustainable practices

Sustainable practices are among the most effective ways to soften the impact of high raw material costs. Waste reduction, recycling, and resource efficiency all cut the volume of raw materials a company needs to buy. Incorporating recycled or renewable inputs, such as recycled plastics, reclaimed metals, or bio-based materials, reduces reliance on traditional commodities and lowers environmental footprint at the same time. Closed-loop systems, which recover and reuse materials from a company’s own operations, take this further by reducing procurement costs directly. Prioritizing energy-efficient and water-efficient processing methods adds a further layer of protection against price hikes while reducing emissions. 

Build the capability to thrive in uncertainty 

When it comes to raw material costs, the only constant is change, and disruption is no longer the exception. Tariffs, freight volatility, climate events, and shifting global dynamics now have a direct and immediate effect on operations, and that is unlikely to ease in the near term. 

The organizations that come out ahead are not the ones that simply absorb each new shock. They are the ones that build agile, responsive supply chains, embrace sustainable and efficient ways of working, and develop the continuous improvement capability that allows their teams to self-solve and improve, one step at a time. That is how volatility becomes a competitive advantage rather than a recurring threat. It is also how organizations sustain the change, turning hard-won improvements into lasting operational excellence rather than temporary wins. 

Related questions

What are raw materials?

Raw materials will vary depending on the industry and product being produced. However, common raw materials include:

What do raw material costs include?

Raw material costs comprise all the expenses associated with acquiring the basic, or raw, materials and resources used in the manufacturing process. The cost of raw materials typically includes expenses related to extraction, harvesting, processing, transportation, storage, and any other necessary steps to make them usable in the production process.

How can manufacturers protect margins when raw material prices are volatile? 

The most effective approach combines several of the strategies above. Financial modeling and scenario planning help anticipate cost movements, strategic sourcing and an agile supply chain reduce exposure to any single disruption, and a continuous improvement culture builds the efficiency and adaptability that allow an organization to keep delivering to promise even when input costs spike. 

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