Understanding Commodity Market Volatility: Strategies for Fair Pricing
This article has been revised as of April 2025, originally published in September 2024.
Recent Trends in Commodity Pricing
The commodity markets have experienced notable fluctuations in recent years. Following a period of aggressive price hikes from late 2021 through 2022, which affected various sectors including energy, metals, polymers, and packaging materials, there has been a marked decline in prices across these commodities in 2023 and 2024. As we enter 2025, potential changes in global trade policies and tariff regulations could again reshape the pricing landscape, possibly leading to increased ex-works and landed costs for purchasing organizations.
Challenges Faced by Purchasing Organizations
Purchasing departments, which had previously been confronted with rising costs from suppliers, are now tasked with recalibrating commodity and component pricing to align more closely with what can be considered a “fair price.” This adjustment is informed by recent developments in raw material and energy prices.
Approaches to Achieve Fair Pricing
To effectively negotiate fair prices with suppliers, especially during periods of market fluctuation, an analytical approach is crucial. Understanding the various factors that drive input costs is essential for purchasing organizations. One leading method to enhance this understanding is through the use of a “spend digital twin.” This innovative tool allows organizations to conduct an extensive analysis of expenditures, facilitating a granular assessment of cost drivers at the category level. With this insight, organizations can make informed decisions and establish a realistic basis for pricing relative to supplier quotes.
Conclusion
As commodity markets continue to evolve, adapting to changes in pricing structures remains essential for purchasing organizations. Implementing analytical tools like the spend digital twin can provide a competitive edge in negotiations, ultimately helping to maintain fair pricing amidst the volatility.
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