Each craft material may be upgraded up to Godlike quality. To upgrade material to higher quality, you need four materials of lower quality.
To access the combination interface, click the "Forge" icon on the lower menu panel.
Next, go to the "Workshop" materials section and click "Combine."
Once you have four items of the same quality, click the crossed squares button to get a material of higher quality.
If you have many materials to combine, you may click the ">>" button to the left to combine all materials at once. Note that you'll only be able to combine materials this way if you have an active Premium status. 

To combine materials of higher quality, you need to research relevant technologies in the Academy's "Blacksmithing" branch.

Material saving chance technology grants a chance to save some materials when combining them.