The current state of the commodities industry
The strong volatility in the commodities market is the result of constrained supply and excessively high, in some cases still increasing, demand. Following a turbulent start to the COVID-19 pandemic, marked by demand and price shocks triggered by restrictions, the global economy entered a period of standstill. In the months that followed, prices recovered and in some segments rose to unprecedented levels. These fluctuations and price shocks over recent years have made the need for flexible pricing management increasingly clear.
Current challenges in the commodities market
The sharp price volatility in the market initially resulted in margin pressure for many companies. At the same time, it is creating opportunities to implement long-overdue price corrections and improve profitability. Companies still feeling the effects of the COVID-19 pandemic may benefit from recovering demand and market growth in the years ahead. However, potential risks, including possible demand corrections for raw materials in the coming years, should also be considered.
Competition
The commodities market is currently shaped by low barriers to entry and limited competitive pressure as a result of strong demand. In some areas, however, competition is expected to increase again over the coming years as demand normalizes and supply adapts. Given the current market transition, companies should seize the opportunity to push through price adjustments. At the same time, they need to establish a flexible price management system, that can respond effectively to shifts in supply and demand.
External factors
Profitability in the commodities sector is also influenced by external factors:
- Exchange rate volatility: A falling effective exchange rate and the associated appreciation of the euro increase the cost of exports. In some parts of the commodities sector, exports account for more than one-third of total revenue, meaning unfavorable exchange rate developments can materially affect revenue growth.
- Increasing regulatory pressure: Tighter regulation, including the new Renewable Energy Sources Act (EEG) and EU environmental directives, is having a significant impact on the sector as a whole.
- Sustainability & circular economy: In recent years, demand for more sustainable products and circular economy solutions has grown significantly, compelling companies to align their portfolios with these expectations. Key topics in this context include waste reduction, resource recovery, and energy recovery.
- Certifications: The growing focus on sustainability is also increasing demand for certified raw materials, such as low-emission products. Meeting this demand often requires companies to redesign their processes, but it also opens up opportunities to access new markets.
- Digitalization: Digitalization has long been an integral part of the industry. The use of information and communication systems, together with predictive analytics for forecasting future demand, will become increasingly important for enhancing efficiency and profitability.
- Covid-19 pandemic: The COVID-19 pandemic resulted in a decline in industrial activity and the associated drop in revenues. At the same time, many of the megatrends linked to the pandemic accelerated technological innovation. In the commodities market in particular, the pandemic caused demand shocks and constrained supply.
- China’s economic development: Growth in China’s demand for raw materials is expected to slow in the coming years. This is likely to increase competitive pressure and reduce export potential.
Profit opportunities in the commodities sector
To unlock profit opportunities, we offer tailored solutions in the following areas:
- Market entry: Development and implementation of go-to-market strategies.
- Market & customer strategy: Design of systematic market segmentation, customer segmentation, and customer retention strategies as the foundation for long-term success
- Digital sales enforcement: Identification of growth potential among new and existing customers through pricing and sales tools, combined with the implementation of digital solutions
- Dynamic value-based pricing: Analysis of current pricing and discount structures, along with the implementation of modern portfolio pricing that reflects market dynamics and the value of the company’s products, as well as the identification of cross-selling and upselling potential
- Sales excellence: Identification of sales potential and delivery of sales training
- Quick-win analysis: Identification of pricing and sales quick wins
- Multi-channel management: Identification of challenges in a multi-channel environment and development of an execution roadmap
- Value-added services: Identification and implementation of mechanisms to increase customer satisfaction and profitability through a differentiated service portfolio
- Incentive systems: Analysis of incentive levers for employees, resellers, and customers
Learn more about pricing and distribution measures in the commodities market
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