Commodity Price Risk and Material Scarcity: An Escalating and Complex Risk

How Uncertainty is Driving Commodity Price and Material Scarcity Risk

This year’s Global Risk Management Survey shows how commodity prices and material availability continue to be critical factors in influencing the global business landscape. While some commodity prices have eased since their pandemic peaks, others have soared to record levels. Many remain costlier than before 2020, thanks to continued uncertainty and volatile demand.¹

Market Dynamics Affecting the Risk Landscape

Supply chains are under strain from geopolitical tensions, labor shortages and climate-related disruptions. Severe weather events have intensified raw-material shortages and escalated costs across a range of industries — including food, agriculture and beverages, automotive, and pharmaceutical and life sciences — highlighting the vulnerability of global supply networks.² At the same time, tariffs on certain commodities are increasing production costs and affecting competitiveness, particularly in sectors such as manufacturing and construction.

Affected commodities include the following:

• Energy: In mid-2024, prices in oil and refined products surged as a result of geopolitical tensions and production cuts. Now, thanks to ample supply and slowing demand, the World Bank has forecast³ a fall in commodity prices in 2025–26. However, weather and escalating geopolitical risks keep markets sensitive, and market volatility is expected to continue.
• Metals and Minerals: Persistent shortages of rare earths, copper and polysilicon continue to strain some sectors, for example by driving up costs for wind turbines and solar panels. In contrast, 2024 saw a temporary oversupply of lithium, cobalt and nickel, which led to falling prices and production cuts.⁴ At the same time, weak demand, particularly from China, has weighed on prices for industrial metals⁵ including nickel, aluminum, copper, lead and zinc.
• Agriculture and Livestock: Prices remain volatile, influenced by supply chain disruptions linked to conflict zones, fluctuating demand for biofuels and weather conditions. Food insecurity persists in vulnerable regions despite some price easing.⁶

Tackling Commodity Price Risk and Material Scarcity

Liquidity, working capital and access to financing remain central to effectively managing commodity price risk and material scarcity. To strengthen their position, organizations can consider the following five actions:

1. Diversify Supply Chains and Commodity Portfolios:
   
   Reducing reliance on a single source or supplier helps to mitigate the dual risks of price volatility and material scarcity. Broadening the supplier base and exploring alternative materials can enhance operational resilience.
2. Leverage Financial Hedging Instruments
   
   Deploying derivatives and other hedging strategies can help organizations manage exposure to commodity price fluctuations by stabilizing costs and protecting margins.
   
   Weather derivatives, in particular, are increasingly popular due to rising global temperatures and more frequent extreme weather events. These instruments are designed to offer payouts based on predetermined weather variability, helping organizations mitigate financial impacts from adverse weather conditions such as crop damage.
3. Integrate Data and Analytics for Real-Time Risk Monitoring
   
   Advanced analytics help businesses constantly monitor and identify risks and support timely decision making. Combining commodity risk insights with business interruption and supply chain risk assessments provides a wide-ranging view of potential financial impacts.
4. Explore Tailored Insurance and Risk Transfer Solutions
   
   While traditional insurance plays a limited role in managing commodity price risk directly, products such as non-payment insurance, political risk insurance and business interruption insurance can mitigate downstream effects. Customized financial solutions — including captives, parametric insurance and mark-to-market insurance — offer innovative ways to manage volatility.
5. Use Surety as a Collateral Replacement Tool
   
   In a tight liquidity environment, organizations are increasingly turning to the surety market for guarantees. Surety serves as a substitute for letters of credit or bank guarantees without affecting the applicant’s bank line, as it remains unsecured in transactions. This frees up onerous collateral requirements, unlocking capital for organizations to reinvest in growth.

Why It Matters

Managing commodity price risk and material scarcity effectively is central to strategic risk management — particularly for companies in industries with high levels of exposure. Organizations that combine diversified sourcing, real-time analytics and innovative risk-transfer solutions will be better positioned to safeguard operations and sustain growth in a volatile market.

¹ Commodity Markets Outlook, World Bank Group, April 2025
² Jason Miller, “Raw material shortages have abated, but some lingering issues remain,” Supply Chain Management Review, January 7, 2025; Lori Ann LaRocco, “The trade war’s wave of retail shortages will hit U.S. consumers in stages. Here’s when,” CNBC, April 25, 2025; Alejandra Carranza, “Shortages 2025: Geopolitics, severe weather fuel uncertainty,” Supply Chain Dive, January 31, 2025
³ “Commodity Markets Outlook, World Bank Group, April 2025
⁴ “Electric vehicle batteries,” Global EV Outlook 2025, International Energy Agency (IEA), May 2025; “Why EV Battery Production Is on the Rise This 2025,” Integrated Micro-Electronics, Inc., April 15, 2025; Callum Perry, Ewan Thomson, and the Fastmarkets team, “Facing the tightening lithium supply challenge in 2025,” Fastmarkets, February 6, 2025; Nick Holt, “EV battery supply – potential materials shortages,” Automotive Manufacturing Solutions, updated July 2, 2025
⁵ Data Blog, “Metal prices slide amid weak industrial activity,” blog entry by Jeetendra Khadan and Kaltrina Temaj, World Bank Blogs, November 19, 2024
⁶ Commodity markets outlook, World Bank, April 2025; Data Blog, “Global food commodity prices ease amid improved supply conditions and trade concerns,” blog entry by John Baffes, Dawit Mekonnen and Kaltrina Temaj, World Bank Blogs, May 22, 2025; Taylor Stinchfield, “Agriculture Commodity Price Forecast: Late 2024 into 2025,” FarmRaise, November 6, 2024; “Tariffs and turbulence: How Trump’s trade policies and geopolitical tensions are reshaping commodity markets,” Oxford Economics, June 20, 2025; “Falling Commodity Prices Could Mute Inflation Risks from Trade Tensions,” World Bank, April 29, 2025; “Response to Price Volatility in Food and Agricultural Markets: Policy Responses,” Renewable Fuels Association, 2011

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