From market trends to procurement budget: how to use price forecasts to plan purchases in 2027

In collaboration with Luisa Malagoli, Purchasing Manager at Zenit Italia s.r.l.

The challenge of procurement budgeting in an uncertain environment

Setting the procurement budget is one of the most critical steps in financial planning for manufacturing companies. Assumptions about future raw material and intermediate goods prices directly influence expected production costs and, ultimately, company margins.

This process becomes particularly challenging when commodity markets are characterized by high volatility and difficult-to-predict risks.

The developments of 2026 provide a clear example. Geopolitical tensions in the Middle East, the resulting pressure on energy markets, and their impact on industrial commodity prices have significantly reshaped the cost outlook for European manufacturers.
According to the October 2026 PricePedia Forecast Scenario, euro-denominated industrial commodity prices are expected to increase by an average of 8% in 2026, followed by a further 3% rise in 2027.

However, these aggregate figures conceal substantial differences across individual commodity categories. For manufacturing companies, the challenge is to translate market intelligence into cost assumptions that accurately reflect their purchasing structure.

But how can market price forecasts be translated into a company's procurement budget?

Where to start: understanding exposure to commodity markets

The first step is to identify the purchasing categories most exposed to commodity price fluctuations.
Not all purchases are affected equally by changes in raw material markets. The impact depends on the composition of the products being purchased, the share of raw materials in suppliers' production costs, and the contractual terms in place.

Building a reliable budget therefore requires identifying the main factors driving prices within each purchasing category.
For example, the purchase price of a plastic component may depend not only on polymer prices but also on energy costs, manufacturing processes, and the commercial terms agreed with the supplier.

At this stage, the Purchasing Manager plays a crucial role in connecting market intelligence with the company's actual procurement activities.

Mapping purchasing categories involves a structured process that combines expenditure data with cost drivers: the macroeconomic, geopolitical, and industry-specific factors that influence price trends across entire market segments.

The essential starting point is to classify purchasing categories and quantify their financial value through Spend Analysis. For each category, the underlying commodity that primarily drives its price is then identified. In the case of electrical cables, for example, copper is the main cost driver.

Identifying the factors behind product prices requires strong, trust-based relationships with suppliers, together with transparency regarding cost structures (cost breakdown) and distribution channels. This approach makes it possible to distinguish the actual cost of raw materials from logistics costs and margins along the supply chain. A thorough understanding of suppliers' markets is also essential to identify other relevant cost drivers, including customs duties, transportation costs, regulatory changes, and sustainability-related requirements.

From market forecasts to budget assumptions

Once the relevant purchasing categories have been identified, the next step is to establish assumptions about how their prices are likely to evolve.

A common approach to budgeting is to extrapolate recent prices into the following year. However, this method has significant limitations, particularly when markets are experiencing major disruptions.
Current prices do not necessarily provide a reliable indication of the average prices expected in the year ahead.

For this reason, historical data can be complemented with price forecasts that account for expected developments in supply and demand, energy costs, and key macroeconomic variables.

The PricePedia Forecast Scenario, updated monthly and covering a 24-month forecast horizon, provides insights into the expected price evolution of more than 400 commodities and economic variables.
When preparing the 2027 procurement budget, this allows companies to move beyond assumptions based solely on current prices and develop estimates grounded in the expected evolution of commodity markets.

A practical example

Consider a manufacturing company that purchases three categories of materials: electrical cables, steel products, and plastic products.
For each category, the Purchasing Manager has information on the quantities expected to be purchased in 2027 and a baseline expenditure figure that can be used to estimate the impact of forecast changes in raw material prices.

The PricePedia Forecast Scenario makes it possible to identify the expected evolution of the main cost drivers and use these forecasts to develop an initial estimate of procurement expenditure for 2027.
The key step is to link the forecast change in commodity prices to the actual share of that commodity in the purchase price of the finished product. This analysis can be supported by a cost breakdown, which separates the contribution of raw materials from other cost components, such as energy, processing, and supplier margins.

The following table illustrates how this approach can be applied to the three purchasing categories. For each category, it identifies the main cost driver, its forecast price change, and the share of raw materials in the purchase price.
By multiplying the forecast change in the cost driver by its share of the purchase price, and applying the resulting percentage to baseline expenditure, it is possible to obtain an estimate of the additional cost and the resulting procurement expenditure for 2027.

For simplicity, the simulation assumes constant purchase volumes and full pass-through of changes in the cost driver to the corresponding component of the purchase price. The raw material cost shares are illustrative assumptions and should be validated against product characteristics and supply conditions.

Table 1: 2027 Procurement Budget Simulation

The example illustrates how forecast changes in commodity prices can have different effects on procurement costs, depending on both the price dynamics of individual markets and the share of raw materials in the cost of purchased products.

For electrical cables, for instance, a forecast average increase of 4.5% in copper prices in 2027, combined with a 30% share of copper in the product's total cost, results in a theoretical purchase price increase of 1.35%. Applied to baseline expenditure of €1 million, this translates into an estimated additional cost of €13 500.

Applying the same approach to the other categories, the overall increase in expenditure attributable solely to forecast changes in the main raw material cost drivers amounts to approximately €39 000 (+1.68%), bringing simulated 2027 procurement expenditure from €2.3 million to almost €2.34 million.

It is important to emphasize that this is a theoretical estimate. It assumes that changes in raw material costs are fully passed through to purchase prices, while all other cost components and purchase volumes remain unchanged.

In practice, changes in market prices are not necessarily reflected immediately or proportionally in the prices charged by suppliers. Contractual arrangements can significantly influence both the magnitude and timing of these adjustments.

For example, raw material indexation clauses link purchase prices to specific market benchmarks, according to agreed formulas and adjustment schedules. Fixed-price agreements, on the other hand, can temporarily shield companies from price increases, potentially postponing their impact until the next contract renegotiation.

Inventory management can also help shape a company's exposure to market fluctuations. Materials purchased under previously agreed terms, including stock held on consignment or under supplier-managed inventory arrangements, may help limit the impact of price increases until the quantities covered by those agreements have been used.

PricePedia forecasts therefore provide a quantitative benchmark for estimating future raw material costs, which needs to be combined with an understanding of product cost structures, supply agreements, and company-specific requirements.

It is this combination that makes it possible to turn market intelligence into budget assumptions that more accurately reflect the costs a company is likely to face.

Turning the procurement budget into a dynamic planning tool

Preparing a procurement budget should not be a one-off exercise completed at the beginning of the financial year. In a highly volatile environment, regularly comparing initial assumptions with market developments is essential for effective purchasing management.

Forecasts inevitably involve uncertainty and may change as new information becomes available. For this reason, the ability to update budget assumptions is just as important as establishing them in the first place.

Monthly updates to the PricePedia Forecast Scenario allow companies to track changes in commodity price expectations and assess their potential implications for future procurement costs.

As the Purchasing Manager's experience demonstrates, this information can be incorporated into a structured budget review process, carried out quarterly in her operating model.

Systematic market monitoring also delivers important benefits for day-to-day procurement activities. In particular, it enables purchasing teams to:

• Strengthen supplier negotiations by using objective market benchmarks to assess the validity of price increase requests and challenge unjustified increases;
• Take advantage of declining markets by promptly identifying favorable conditions for renegotiating supplier prices and securing purchasing cost reductions;
• Plan procurement ahead of time by considering forward purchasing opportunities, where operational and financial conditions allow, to reduce exposure to potential future price increases.

From this perspective, the PricePedia Forecast Scenario is not simply a tool for preparing the initial budget. It also provides an ongoing reference for monitoring procurement costs and supporting purchasing decisions.

Conclusions: combining market intelligence with procurement expertise

Effective procurement planning increasingly requires an approach that combines quantitative market intelligence with an in-depth understanding of company operations.

Commodity price forecasts provide a starting point for developing better-informed budget assumptions. However, their effectiveness depends on how well they are linked to specific purchasing categories, supply contracts, and production requirements.

It is precisely through the combination of economic analysis and the Purchasing Manager's expertise that forecasting scenarios can deliver their greatest value.

The goal is not to eliminate uncertainty, but to have the tools needed to assess its potential financial implications and make better-informed decisions.