Agreed there needs to be an upconvert system for these types of materials.
Keep it consistent, but more expensive, than the exchange rate in ingots.
That is a 3:1 ratio for common to medium cloth if going by ingot price. Go ahead and make it so you can convert 4 common cloth into 1 medium cloth and everyone wins. Players get use out of the stuff they ALREADY EARNED/BOUGHT that they otherwise wouldn't be able to and it's STILL a resource sink that is less effecient than buying medium cloth.
Heck make it 4 common cloth to 1 medium cloth with a coin fee of 2-4000 coins for all I care. I'd still do it, anything is better than NOTHING but if they make the exchange rate much worse than 4:1 and coins then it's going to feel like a slap in the face.
Same with refine runes, same with threads, if you are going to continue to push these items in events and stuff, make sure that they are USABLE. I barely bought any common thread straight from the shop, but I have leftovers in my inventory. and the common cloth, oh god I have almost 100 now.. with only 2 more levels of needing medium cloth. if I could exchange that for 25 or even 20 medium cloth I'd be happy.
OTHERWISE another viable solution is to just give us "battle armor" currency for Strong Approaching instead of the pre determined com/med/adv cloth. and let us spend it on what we need obviously with varying prices.