The 1% Weak Links: How Small Raw Materials Pose Big Risks in 2025

Executive Summary

In 2025, the chemical industry faces a growing supply-chain risk that has received relatively

little public attention but could reshape the competitive map over the next 5–10 years. Unlike headline shocks (e.g., energy crises), this risk is more insidious — concentrated in long-tail, hard-to-replace raw materials whose production is vulnerable to geopolitical conflict, regulatory pressure, and logistics disruption. Key materials such as battery-grade cobalt and gum arabic are increasingly exposed, while shipping risks (particularly through the Red Sea) and cost structures are being permanently redefined. Companies that fail to proactively manage this risk may face supply interruptions, escalating costs, or disqualification from premium customer contracts.

1. Structural Risks: Verifiable Disruptions

1.1 Cobalt Supply Tightening in the Democratic Republic of Congo (DRC)

• The DRC, which produces a large share of the world’s cobalt, has imposed a temporary export ban (starting February 2025) to address oversupply and stabilize global markets.

• That ban was later extended, further tightening near-term mine supply.

• From October 16, 2025, the DRC plans to transition to a quota-based export regime: 18,125 metric tons for the remainder of 2025, and quotas of 96,600 t/year for 2026-2027, according to regulator ARECOMS.

• The DRC regulatory authority warns that quotas may be revoked for producers who fail to meet export targets, or violate traceability, environmental, or tax rules.

• According to analysts, the quota level may push the cobalt market into a structural deficit, potentially prompting buyers to seek alternative sources or chemistry strategies.

Implication: Dependency on DRC cobalt is becoming riskier. Export controls and quota enforcement could constrain supply, drive up prices, and incentivize off-take partners to diversify or shift to lower-cobalt chemistries.

1.2 Gum Arabic Risk from Conflict in Sudan

• Gum arabic, a critical resin used in food, pharmaceuticals, cosmetics, and more, is largely sourced from Sudan.

• Conflict in Sudan, particularly in regions controlled by the Rapid Support Forces (RSF), has disrupted production and supply chains.

• Industry sources report that gum arabic is being smuggled from rebel-held regions, leading to opaque trade flows and undermining certification and traceability.

• Some global buyers (e.g., Ingredion, Nexira) have publicly said they are diversifying away from Sudan due to the unstable and unverified trade channels.

• According to Bloomberg, truckers exporting gum arabic must pay fees to armed actors to move goods, raising both cost risk and reputational risk.

Implication: Gum arabic supply chains are highly exposed to geopolitical risk. The lack of transparent, conflict-free sourcing is pushing companies to reassess their supply strategies and consider alternative sourcing geographies or synthetic substitutes.

1.3 Elevated Shipping & Insurance Risk via the Red Sea

• In 2025, war-risk insurance premiums for vessels transiting the Red Sea have more than doubled following renewed attacks by Houthi militants.

• Underwriters have quoted risk premiums reaching ~1% of a vessel’s value for certain voyages, up from ~0.3–0.4% earlier.

• The increased cost is not just theoretical: industry sources warn that carriers may continue to avoid the Red Sea route or demand premium surcharges, which in turn raise the effective cost of moving chemical raw materials.

Implication: Elevated transport risk via the Red Sea may become a structural cost for global chemical logistics. Companies should model this risk explicitly in cost-base and supply-chain planning, rather than assuming “business as usual” on shipping costs.

2. Trend Analysis: Emerging but Partially Verified Dynamics

Based on public reporting, market-intelligence research, and expert commentary, several longer-term trends are becoming clearer — though some quantitative details remain uncertain.

2.1 Concentration of Critical Raw Materials

• Many key chemical raw materials (“long-tail” intermediates) remain highly concentrated in few geographies: cobalt in DRC; gum arabic in Sudan; other niche feedstocks (e.g., specialty minerals) also face similar risks.

• Because of this concentration, any geopolitical or regulatory disruption in producing regions has outsized impact on global supply chains.

2.2 Downstream Cost Pass-Through and Premium Pressures

• Several chemical companies have publicly announced price increases in 2025, especially for intermediates linked to raw-material risk.

• These increases are not solely due to demand: supply-chain pressures, logistical risk, and insurance costs are being integrated into pricing.

• Downstream customers likely will face new structural cost burdens, not transient surcharges.

2.3 Longer Validation & Qualification Cycles

• For many high-performance or regulated products (battery materials, coatings, specialty chemicals), switching raw-material sources often requires re-qualification, which can take many months or even years.

• This extended cycle increases the barrier to rapid raw-material substitution, even when supply alternatives exist.

3. Strategic Risk-Management Framework

Given these risks and trends, chemical industry leaders should elevate strategic responses. Below are recommended priority actions for boards, C-suites, and strategic investors:

3.1 Map & Stress-Test Your “Critical Raw Material” Exposures

• Identify the top 20–50 long-tail raw materials in your value chain (e.g., cobalt, gum arabic, rare minerals).

• For each material, assess:

  1. Current production geographies

  2. Alternative supply sources

  3. Cost and lead-time risk under different disruption scenarios (geopolitical, logistics, export controls)

• Use scenario planning (e.g., “DRC export quota tightens further,” “Red Sea route is avoided for 2+ years”) to stress-test your business model.

3.2 Revisit Supply Agreements & Off-Take Contracts

• Negotiate clauses that protect access in a constrained supply environment. These may include:

  • Volume guarantees with flex provisions

  • Shared-risk mechanisms (e.g., cost escalation due to transport, insurance)

  • Diversification commitments (off-take from second-source suppliers)

• Ensure due diligence on conflict-sensitive sourcing; traceability and ESG/ESM terms may become more important for financial partners and customers.

3.3 Reassess Capital Allocation Around Resource Jurisdictions

• Re-evaluate CAPEX plans considering resource risk:

  • Invest in “secure-jurisdiction” raw material projects (e.g., outside of conflict zones)

  • Consider joint ventures or strategic partnerships in emerging alternative regions (e.g., Indonesia for cobalt)

• Build internal flexibility: retain exposure to both high-risk/high-reward geographies and alternative lower-risk ones.

3.4 Build Logistic Resilience & Hedging Capabilities

• Incorporate elevated transportation risk into financial models: higher insurance, rerouting, longer lead times.

• Explore insurance hedging strategies, buffer inventory, or forward-booking critical shipping capacity.

• Collaborate with shipping/logistics partners to lock in capacity on safer but possibly more expensive routes.

3.5 Accelerate R&D & Qualification for Material Alternatives

• Increase investment in substitute chemistries or synthetic analogues where raw-material supply is highly constrained.

• Prioritize materials with long validation cycles; begin qualification now rather than later.

• Work closely with key customers (e.g., battery makers, coating manufacturers) to co-develop “supply-resilient” formulations.

4. Conclusion: 2025 as a Quiet Inflection Point

2025 may not be remembered for a “chemical crisis” headline, but it may well mark the beginning of a structural supply-chain turning point for the global chemical industry. The convergence of geopolitical risk (in cobalt and gum arabic), escalating transport risk (Red Sea), and market-tightening policies (e.g., DRC quotas) is not likely to reverse quickly.

The companies that will thrive over the next decade are those that:

• Recognize and map their exposure to these “silent but systemic” risks

• Build flexible, diversified sourcing strategies

• Invest in alternative materials and qualification capacity

• Embed resilience in logistics and financial planning

Inaction or complacency could expose businesses to sudden supply shocks, rising costs, or exclusion from high-value markets. The time to act is now.