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 effecton the level of cash flows and generate insolvency risk among companies, all the more so when crises are driven by objective circumstancesbeyond human control. Being well-versed with these risks, a company should take steps to mitigate the risk of rawmaterials price volatility affecting the planned results in at least the medium term. The subject of this analysis is to point out theinterdependencies between the basic economic categories when it comes to how the steel market functions and the risks stemmingfrom the volatility of the raw materials market. Moreover, it portrays the main financial instruments that can be used to mitigatethe consequences of the risk of movement of raw materials prices.