In the past, commodity prices largely sat with procurement.
If steel became more expensive, the purchasing team negotiated with suppliers. If natural gas prices rose, energy buyers updated budgets. If cocoa prices surged, food manufacturers reviewed contracts and looked for savings elsewhere.
Today, those same discussions increasingly involve finance directors, chief executives and boards.
The reason is not simply that commodity markets have become more volatile. Commodity markets have always been volatile, what has changed is the scale of the impact and the number of businesses now exposed.
When commodity markets stayed in the background
For much of the 2010s, many businesses benefited from a backdrop of low inflation, relatively stable freight costs and highly efficient global supply chains.
Individual commodity markets still experienced periods of sharp volatility. Oil prices collapsed between 2014 and 2016. Agricultural markets remained cyclical. Metals experienced their own supply and demand shocks.
However, the broader operating environment allowed many businesses to treat raw material risk as an operational issue rather than a strategic one.
Global supply chains were increasingly efficient. Energy costs, while cyclical, were generally manageable. Financing costs remained low. Trade flows were relatively predictable. Many companies therefore, focused primarily on securing supply and negotiating costs rather than actively managing commodity exposure.
That environment has changed.
The growing list of price drivers
Today, commodity markets are increasingly influenced by factors that sit outside traditional supply and demand fundamentals.
A tariff announcement can alter trade flows overnight. Shipping disruption can affect delivered costs irrespective of underlying market balances. Energy price movements can influence aluminium, fertiliser, chemicals and packaging simultaneously. Weather events increasingly affect agricultural output. Carbon regulation is beginning to influence industrial competitiveness.
For procurement teams, this creates a difficult environment. A successful supplier negotiation may still be overtaken by developments elsewhere in the supply chain.
The challenge is no longer simply obtaining the best available price. It is understanding how external events may affect future costs.
When commodity prices become financial risks
Many businesses underestimate the extent of their exposure.
A food manufacturer may focus on agricultural ingredients while overlooking packaging, energy and logistics costs. An industrial company may concentrate on metals while underestimating the role that electricity prices play in supplier economics. Consumer goods companies often discover that several commodity markets are affecting profitability simultaneously.
The consequence is that relatively modest movements in raw materials can have a disproportionate effect on margins.
Boards increasingly find themselves asking:
- How sensitive are profits to raw material prices?
- How quickly can cost increases be passed through?
- What happens if markets move unexpectedly?
- How much working capital is tied up in inventory?
- How exposed is the business to energy-intensive inputs?
These are no longer purely procurement questions. They are questions about financial performance.
Why finance teams are becoming more involved
Commodity volatility presents particular challenges for finance teams because it affects areas that investors value highly:
- earnings visibility
- cash flow predictability
- margin stability
- budget accuracy
- capital allocation
Businesses can often operate successfully with higher input costs. What investors typically dislike is uncertainty.
Unexpected commodity movements can force revisions to earnings guidance, delay investment decisions and increase working capital requirements.
As a result, commodity discussions increasingly involve finance leaders, not simply purchasing departments.
Inventory risk has moved up the agenda
Following recent supply chain disruptions, many companies increased inventory levels to improve resilience.
That decision reduced one form of risk but introduced another.
Falling commodity prices can reduce the value of inventory held on balance sheets. Rising prices can increase working capital requirements. Larger inventory positions can affect borrowing needs and cash flow. As inventory becomes a financial consideration rather than simply an operational one, commodity exposure becomes increasingly relevant to senior management.
From forecasting to resilience
Historically, many organisations attempted to manage commodity exposure through forecasts.
The question was often straightforward:
"Where will prices be in six months?"
Increasingly, companies are asking a different question:
"What happens if our assumptions prove wrong?"
The emphasis is moving from prediction towards resilience. Rather than attempting to forecast precise commodity prices, businesses are increasingly focused on understanding the consequences of adverse market movements.
- What would a significant rise in input costs mean for margins?
- How much volatility can budgets absorb?
- Which suppliers are most exposed?
- Where are the hidden commodity risks?
This is where commodity risk moves naturally from procurement into the boardroom.
Procurement cannot solve this alone
None of this reduces the importance of procurement. Purchasing teams remain the first line of defence against inflation and supply disruption. But the decisions they make increasingly affect:
- profitability
- pricing strategy
- inventory policy
- working capital
- investment decisions
- financial performance
Managing these risks requires closer collaboration between procurement, finance and senior leadership.
The organisations that navigate volatility most successfully are often those that treat commodity exposure as a business risk rather than simply a purchasing issue.
Looking ahead
Businesses do not need to predict every price movement correctly. But they do need to understand how vulnerable they are when markets move against them.
That is why commodity risk is steadily moving up the corporate agenda.
Not because procurement has become less important. But because commodity prices increasingly influence decisions that sit at the very top of the organisation.
Raw material price volatility is no longer simply a procurement issue.
ChAI Protect helps businesses reduce the financial impact of adverse commodity price movements, providing greater certainty over margins, budgeting, cash flow and financial performance.
