Commodity price risk and material scarcity: Global supply chains are repricing “availability”

Introduction: When "Adequate Preparation" and "Losses Occur" Are Both True

The 2025 Global Risk Management Survey ranked "commodity price risk and material scarcity" as the sixth-largest global risk, and projected that it would rise to fourth by 2028.

The ranking itself is not important; what matters is a set of figures that appear alongside it: 60% of surveyed companies said they had established plans to address this risk, but 47% had already suffered losses because of it in the past 12 months, while only 17% had truly quantified the risk.

In other words, most companies' "preparedness" remains at the level of process and awareness, and has not yet been translated into measurable exposure management and capital arrangements. When risk cannot be quantified, it cannot be priced, nor can it be transferred.

Commodity issues are shifting from a hedging topic for the finance department into an upfront constraint in supply chain design.

I. Price Volatility Is a Signal; Material Scarcity Is the Constraint

Commodity price risk and material scarcity risk are often discussed under the same heading, but their mechanisms of impact on the balance sheet are completely different.

Price volatility is a financial signal: it affects gross margin, inventory valuation, and procurement costs, and can be partially absorbed through futures, options, and long-term agreements.

Material scarcity is a physical constraint: it affects delivery capacity, order fulfillment rates, and customer relationships, and cannot be directly eliminated through financial instruments.

When both occur simultaneously, companies no longer face the question of "how much costs will rise," but of "whether they can still deliver on time." This is precisely why this survey lists this risk separately among the global top ten and predicts that its ranking will continue to rise.

The survey also notes that while some commodity prices have fallen from their pandemic peaks and others have risen to historic highs, most commodity prices remain above pre-2020 levels. Persistent uncertainty and volatile demand have formed a new price floor.

II. Three Overlapping Pressures: Geopolitics, Tariffs, and Climate

The report clearly identifies three main lines:

First, geopolitical tensions, labor shortages, and climate-related disruptions are continuously squeezing supply chains.

Second, extreme weather events are exacerbating raw material shortages and driving up costs across multiple industries, including food, agriculture and beverages, automotive, and pharmaceuticals and life sciences.

Third, tariffs on specific commodities are raising production costs and affecting competitiveness, with manufacturing and construction hit especially directly.

What these three lines have in common is that none of them self-corrects through the price mechanism.

Tariffs are a policy variable, depending on negotiations and election cycles; extreme weather is a physical variable, depending on long-term changes in the climate system; geopolitics is an institutional variable, depending on great-power relations and export control frameworks. Companies cannot hedge against any of them by "waiting for the cycle to return."

This means that the adjustment cycle of procurement strategy—from supplier qualification to production line switching—must be shorter than the evolution cycle of the risk itself. In reality, it is often the opposite.

III. The Named Industries Have Different Exposure StructuresReport singled out high-exposure industries including food, agriculture and beverages, automotive, pharmaceuticals and life sciences, and manufacturing and construction. They appear disparate, but in fact share three characteristics: raw materials account for a high share of cost structures, elasticity of substitution is low, and certification and compliance cycles are long.

The agriculture and food chain is most sensitive to weather. World Bank analysis cited in the report shows that global food commodity prices have eased against the backdrop of both improving supply conditions and trade concerns, but weather volatility in producing regions makes the price floor unstable.

The automotive industry's pressure is concentrated in battery materials. The International Energy Agency's Global EV Outlook 2025 and industry research cited in the report both point to tightening supply of key materials such as lithium, and raw material security in the battery supply chain has become a core issue for automakers.

The pharmaceutical and life sciences constraint comes from regulation: switching suppliers of active pharmaceutical ingredients and excipients often requires re-approval, and supply disruptions cannot be resolved through spot purchasing.

Manufacturing and construction bear the most direct price pass-through, with changes in tariffs and freight rates for steel, cement, and timber immediately reflected in project costs.

It is worth noting that the World Bank's data observations point out that metal prices come under downward pressure when industrial activity is weak. But this does not mean medium-term supply is loose. Falling prices and structurally tight supply can coexist—which precisely explains why "price volatility" and "material scarcity" appear on the same risk list at the same time.

IV. The boundaries of risk transfer are expanding

An energy market case in the report provides the best entry point for understanding this change.

A natural resources supplier faced settlement and mark-to-market (MTM) exposure because the buyer was unwilling to provide security by letter of credit, posing a direct threat to its financial stability.

The solution was not traditional cargo insurance, but a three-layer structure:

First, restructuring the transaction and designing a take-or-pay contract so that it could be accepted by the underwriting market;

Second, obtaining USD 100 million in non-payment underwriting capacity through a consortium arrangement with three Lloyd's syndicates;

Third, negotiating MTM coverage for the equivalent of 20% of cargo value, protecting the supplier against loss of profit if the counterparty fails to take delivery or prices move adversely;

In addition, a contract frustration policy enabled the client to manage credit exposure exceeding its internal credit limit.

The analytical value of this case lies in this: the subject of risk transfer is expanding from "assets" to "contract performance and prices themselves." When a trading counterparty's credit is highly correlated with commodity prices, there is a coverage gap between traditional credit insurance and cargo insurance, and that gap is being filled by structured products.

For international trading companies, this means that procurement contracts, offtake agreements, and insurance arrangements need to be designed on the same structural map, rather than handled separately by three different departments.

V. Liquidity and financing are preconditions for risk managementThe report places liquidity, working capital, and financing availability at the core of the response framework, and lists five action directions. Taken together, they can fall into four paths:

Procurement diversification and alternative materials. Reduce dependence on a single production region, a single supplier, and a single transport corridor. The cost is efficiency and economies of scale.

Real-time analytics and exposure quantification. Only 17% of companies have completed quantification, indicating that this is currently the largest capability gap. Without quantification, there is no pricing, and therefore no hedging.

Derivatives and structural hedging. A combination of futures, options, and long-term contracts stabilizes the cost curve, but cannot solve physical shortages.

Innovative risk transfer tools. Handle credit, performance, and price risks as a package, filling the gaps in traditional insurance lines.

What is truly scarce is often not the commodity itself, but time. Supplier qualification, production line switching, and regulatory approval all have fixed cycles. A company’s level of preparedness is ultimately determined by “whether it can complete the switch before the risk materializes.”

VI. Long-term perspective: commodities returning from financial assets to industrial assets

Placing this survey in a longer cycle, it reflects a shift in the center of gravity of the global trading system.

Over the past three decades, globalization has taken efficiency as its core logic: lowest-cost procurement, longest-chain division of labor, and minimal inventory holding. In this system, the role of commodities was closer to that of financial assets—prices were set by futures markets, and companies managed exposure through financial instruments.

Now, supply chain security, regional trade arrangements, critical minerals policies, shipping corridor risks, and freight rate volatility are pulling commodities back toward their positioning as industrial assets. They determine whether production lines can operate, not merely quarterly gross margins.

Three long-term implications of this change:

First, the boundary between procurement decisions and investment decisions is blurring. When material availability affects capacity planning, the procurement department’s voice will inevitably rise to the strategic level.

Second, regionalized layout has gained new cost rationale. Shorter supply chains mean higher unit costs, but also a lower probability of supply disruption. Companies are paying a premium for “certainty.”

Third, the strategic value of logistics and port nodes is being reassessed. When transport corridors become a source of risk, ports, warehousing, and multimodal transport capabilities shift from cost items to resilience assets.

Conclusion: A ranking forecast is a reminder

Moving from sixth to fourth place is a forecast, and also a prompt.

What it signals is not the price direction of any single commodity, but a structural adjustment underway in the global production system: companies need to manage both price volatility and physical availability, and the tools, cycles, and responsible departments for these two differ.

Embedding commodity risk into supply chain design, rather than leaving it to the finance department to hedge at quarter-end, may be one of the main sources of differences in corporate competitiveness over the next three years.

---Source: Aon, *Commodity Price Risk and Material Scarcity: An Escalating and Complex Risk*, Global Risk Management Survey, 2025. https://www.aon.com/en/insights/reports/global-risk-management-survey/commodity-price-risk-and-material-scarcity-an-escalating-and-complex-risk

Further Cited Sources: World Bank Commodity Markets Outlook (April 2025); World Bank Blogs observations on metal prices and food price data; IEA Global EV Outlook 2025; Fastmarkets lithium supply analysis; related reports from Supply Chain Dive, CNBC, and Supply Chain Management Review.