This article was updated in April 2025 following its original publication in September 2024.
In recent years, commodity markets have been significantly volatile. From the end of 2021 and through
2022, sharp price increases were experienced in energy, metals, polymers, packaging materials, wood, and other raw
materials. In 2023 and 2024, prices for commodities such as steel, polymers, and energy have decreased. In 2025,
evolving global trade policies and tariffs may introduce new scenarios for price increases, potentially impacting
ex-works and landed costs.
Purchasing organizations, which had until recently been grappling with steep price increases from suppliers, find themselves
needing to adjust commodity and component prices back to a “fair price” level, based on actual raw material cost
and energy price developments.
How do purchasing organizations address this? A key factor for achieving fair prices with suppliers, whether in times
of rising prices or declining markets, is an analytical understanding of the impact of changes to input cost drivers.
This can now be done by using a spend digital twin. This tool facilitates a comprehensive analysis of the entire
spend, enabling a more detailed examination of cost drivers at the category level, and assessing the impact of
their market development over time to establish a robust fair price in relation to supplier’s price.
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Addressing Volatility in Commodity Markets
As we navigate the ever-changing landscape of commodity markets, it is crucial for purchasing organizations to adopt
strategic approaches that can mitigate the impact of volatility and ensure sustainable procurement practices. In this
article, we delve into the key trends shaping commodity markets, the challenges faced by purchasing organizations,
and actionable recommendations to address these challenges effectively.
Market Trends
The volatility witnessed in commodity markets in recent years can be attributed to a myriad of factors, including global
economic conditions, geopolitical tensions, supply chain disruptions, and shifting consumer demands. These trends
have led to fluctuations in prices across various commodities, creating uncertainty for purchasing organizations
and suppliers alike.
One of the notable trends in commodity markets is the impact of evolving global trade policies and tariffs. These policy
changes can significantly influence the cost of raw materials and energy, ultimately affecting the ex-works and landed
costs for organizations. It is imperative for purchasing organizations to closely monitor these developments and
proactively adjust their procurement strategies to mitigate potential cost increases.
Challenges Faced by Purchasing Organizations
Purchasing organizations are confronted with a host of challenges in managing commodity price volatility. One of the primary
challenges is the need to recalibrate commodity and component prices to align with fair market values. This requires
a deep understanding of the underlying cost drivers and market dynamics, which can be complex and time-consuming.
Furthermore, purchasing organizations must navigate the delicate balance between maintaining supplier relationships and
securing competitive pricing. In times of rising prices, negotiating fair prices with suppliers can be challenging,
while in declining markets, organizations must ensure that they are not overpaying for commodities.
Actionable Recommendations
Based on industry insights and best practices, we recommend the following actionable strategies for purchasing organizations
to effectively address volatility in commodity markets:
- Implement a robust spend analysis process: Utilize advanced analytics tools, such as a spend digital twin, to gain
deep insights into cost drivers and market trends. This will enable organizations to establish fair prices with
suppliers based on data-driven analysis. - Diversify your supplier base: Reduce dependency on a single supplier by diversifying your supplier base. This can
help mitigate supply chain risks and provide leverage in negotiations during volatile market conditions. - Establish strategic partnerships: Collaborate with key suppliers to develop long-term partnerships based on mutual
value creation. This can lead to more stable pricing agreements and ensure a reliable supply of commodities. - Monitor market trends proactively: Stay informed about global economic developments, trade policies, and commodity
price trends. This will enable organizations to anticipate market changes and adjust their procurement strategies
accordingly. - Optimize inventory management: Implement efficient inventory management practices to minimize excess inventory and
reduce carrying costs. This can help mitigate the impact of price fluctuations on procurement costs.
FAQ
Q: How can purchasing organizations leverage technology to address commodity price volatility?
A: Purchasing organizations can leverage advanced analytics tools, such as spend digital twins and predictive analytics
software, to analyze cost drivers, identify market trends, and optimize procurement strategies. These technologies
can provide valuable insights that enable organizations to make informed decisions and achieve cost savings.
Q: What role do strategic partnerships play in mitigating commodity price volatility?
A: Strategic partnerships with key suppliers can help purchasing organizations secure stable pricing agreements, ensure
a reliable supply of commodities, and navigate market fluctuations more effectively. By collaborating closely with
suppliers, organizations can develop mutually beneficial relationships that drive long-term value.
Conclusion
In conclusion, addressing volatility in commodity markets requires a strategic and data-driven approach from purchasing
organizations. By leveraging advanced analytics tools, diversifying supplier bases, establishing strategic partnerships,
monitoring market trends, and optimizing inventory management, organizations can effectively navigate market uncertainties
and achieve sustainable procurement practices. It is essential for organizations to stay agile, adapt to changing
market conditions, and proactively address challenges to ensure long-term success in a dynamic commodity landscape.
