Volatility in the Raw Materials Market and Risk Mitigation Methods

Abstract

Companies in the raw materials market operate in a volatile and unstable market. Business downturns exert a particular effect on the level of cash flows and generate insolvency risk among companies, all the more so when crises are driven by objective circumstances beyond human control. Being well-versed with these risks, a company should take steps to mitigate the risk of raw materials price volatility affecting the planned results in at least the medium term. The subject of this analysis is to point out the interdependencies between the basic economic categories when it comes to how the steel market functions and the risks stemming from the volatility of the raw materials market. Moreover, it portrays the main financial instruments that can be used to mitigate the consequences of the risk of movement of raw materials prices.