Commodities Corner: Understanding Raw Material Power

Our world economy rests on the delicate balance of raw materials, where every fluctuation echoes across industries and societies.

From metals fueling renewable technologies to grains sustaining populations, six-year low commodity prices shape today’s markets and tomorrow’s possibilities.

The Current Landscape of Commodity Prices

After unprecedented volatility—2% rise in 2024 and a sharp 14% drop in 2023—aggregate prices are forecast to fall by an additional 12% in 2025 and 5% in 2026. This broad-based price softness projection will impact over half of monitored commodities, many set to decline by more than 10%. Downside risks include slower global growth, a strong US dollar, and ongoing geopolitical instability, while upside threats lurk in supply shocks and extreme weather events.

Key 2025 benchmarks include:

Forces Shaping Demand and Supply

Global demand continues to be driven by demographic and economic factors that underpin industrial growth. Meanwhile, supply expansions and inventory dynamics introduce fresh volatility.

• Population growth and emerging middle classes boost consumption in Asia and Africa.
• Industrialization and urbanization trend shifts sustain demand for steel, aluminum, and cement.
• Infrastructure development and maintenance needs keep developed markets as major consumers.

On the supply side, oversupply risks loom for nickel, cobalt, cotton, and rubber following production expansions and softening end-use demand. At the same time, new reserve development projects in diversified regions promise to reshape supply chains. Inventory metrics underline market stress: cotton stock-to-use ratios hover just above 65%, while grain and crude oil builds are creating price floors.

Strategic Responses by Industry Leaders

To navigate this environment, corporations are adopting multifaceted strategies that blend risk mitigation, innovation, and sustainability.

• Supply chain optimization and forecasting powered by AI and machine learning improves demand planning and inventory control.
• Off-balance sheet inventory solutions and prepayment arrangements enhance liquidity and working capital management.
• Sustainable procurement and circular economic models reduce reliance on virgin materials and address environmental responsibilities.
• Strategic supply diversification efforts secure sources from emerging producers beyond traditional suppliers.

These approaches reflect a broader shift towards resilient and agile operational models that can withstand price cycles and geopolitical shocks.

Regional and Sectoral Perspectives

Construction markets are poised for low-single-digit growth, yet remain vulnerable to slowing infrastructure investment, particularly in China. The agriculture sector balances price softening and food security, as farmers navigate climate-driven yield disruptions persist alongside innovative prepayment and barter solutions. In energy, demand for energy transition materials demand like lithium and rare earths grows at an annual rate of 4.5% through 2035, though policy headwinds temper immediate expansion.

The Long-Term Outlook and Sustainability Imperatives

Beyond cyclical ebbs and flows, the medium- and long-term outlook for most raw materials remains positive, fueled by demographic growth, digitization, and the clean energy transition. Corporations are increasingly recognizing the necessity of sustainable practices to secure future inputs.

• Circular economic models to reduce waste accelerate the adoption of recyclable and second-life materials.
• Traceable and certified sourcing standards build consumer trust and ensure regulatory compliance.
• Investment in green mining and processing mitigates environmental impact and secures social license to operate.

Robust regulatory frameworks, such as EU Emissions Trading allowance prices nearing €95/ton, also incentivize decarbonization across industry value chains.

Navigating Uncertainty: Investment Implications

For investors, this landscape offers both risks and rewards. Price downturns may present buying opportunities in quality assets, while persistent volatility underscores the importance of risk management.

Key considerations include diversifying across commodities with differing cycles, leveraging futures and options for hedging, and focusing on companies with supply chain resilience mechanisms and sustainability credentials. As technology reshapes demand for metals like copper in AI and data centers—forecast to grow 3% by 2030—allocating capital towards energy transition and digital infrastructure materials can yield long-term benefits.

Ultimately, understanding the power dynamics of raw materials means balancing immediate challenges with the promise of transformative trends that drive global progress. By embracing innovation, sustainability, and strategic foresight, stakeholders can turn a turbulent market into a crucible for resilient growth and shared prosperity.

As we look beyond 2025, remember that raw materials are not merely commodities—they are the building blocks of our future, shaping economies, technologies, and societies in profound and lasting ways. The question for leaders and investors alike is how to harness this dynamic field of opportunity and risk to create enduring value.