Raw material contracts and pricing guide: from offer to hedging
A good raw material deal starts with the right price but is protected by the details of the contract. This guide brings together requests for quotation and firm offers, minimum quantities and tolerances, spot and term contracts, formula pricing and indices, exchanges and hedging, and force majeure, arbitration and standard contract forms.
Updated October 14, 2026
In this guide
- Request for quotation (RFQ)
- Firm offer vs. indicative price
- Offer validity and price revision
- Minimum order quantity (MOQ)
- Sales contract
- Quantity tolerance (± %, “more or less”)
- Spot purchase vs. term contract
- Formula pricing (index-linked pricing)
- Price reporting agencies (Platts, Argus, ICIS, Fastmarkets) (PRA)
- London Metal Exchange (LME) and commodity exchanges
- Hedging (price-risk management)
- Contango and backwardation (forward curve)
- Force majeure
- Arbitration (international commercial arbitration)
- GAFTA and FOSFA standard contracts
Request for quotation (RFQ)
A document in which a buyer asks suppliers for prices, stating the material, specification, quantity, delivery place, Incoterm, payment terms and required delivery date. A good RFQ also sets the acceptable quality range, required documents (COA, TDS, certificates), packaging and how long offers must remain valid, so that offers can be compared like for like. On the marketplace, published buying requests are sent to verified suppliers in the relevant category.
Full entry and related terms in the glossary →
Firm offer vs. indicative price
An indicative price signals the market level and does not bind the seller; price ranges in listings are usually of this kind. A firm offer is a binding offer for a defined quantity, quality, delivery and payment terms, valid for a stated period (e.g. “valid 24 hours”, without “subject to prior sale”), which forms a contract as soon as the buyer accepts it. Because raw material markets move quickly, firm offers are usually short-lived, and reservations such as “subject to availability” should be watched for.
Full entry and related terms in the glossary →
Offer validity and price revision
The period during which an offer can be accepted unchanged – kept short for volatile raw materials, from a few hours to a few days. Contracts with long lead times or periodic deliveries use price-revision (escalation) clauses: if a raw-material index, energy cost, freight or exchange rate moves beyond a set threshold, the price is updated by formula. Such clauses stop fixed-price contracts from collapsing into cancellation or default when markets move sharply.
Full entry and related terms in the glossary →
Minimum order quantity (MOQ)
The smallest order a supplier will accept. For raw materials the MOQ is usually defined by a container (e.g. 20–25 t of resin, one 40’HC), a production batch or a truckload; for bulk cargo it may be a ship parcel such as 5,000 t. Requests below the MOQ are served at a higher unit price, from stock or via distributors. On the platform, large transactions go to the deal room, while small quantities are routed to direct contact with the supplier.
Full entry and related terms in the glossary →
Sales contract
The core document setting out the parties’ rights and obligations in an international raw material sale. It should cover the product and specification, quantity and tolerance, price and currency, Incoterm and named place, shipment period, payment method, quality and quantity determination (inspection), insurance, force majeure, remedies for breach, governing law and dispute resolution. Where the parties’ countries allow it, the UN Convention on Contracts for the International Sale of Goods (CISG) applies unless expressly excluded.
Full entry and related terms in the glossary →
Quantity tolerance (± %, “more or less”)
A clause in bulk and large-volume contracts accepting that the delivered quantity may deviate from the contract quantity by a set percentage, usually ±5 % or ±10 %. It states whose option the deviation is: the seller’s (MOLSO) or the shipowner’s (MOLOO). Over- or under-delivery within the tolerance is normally invoiced at the contract price, and the letter of credit must carry the same tolerance – otherwise UCP 600 allows only ±5 % for bulk goods.
Full entry and related terms in the glossary →
Spot purchase vs. term contract
A spot purchase is a one-off deal at the current market price for prompt delivery: flexible, but exposed to price and supply swings. A term contract secures regular shipments over a period (a quarter, a year) at a fixed or formula-linked price, giving security of supply but often with a minimum off-take (take-or-pay) obligation. Manufacturers usually balance risk by covering part of their needs on term and buying the rest spot.
Full entry and related terms in the glossary →
Formula pricing (index-linked pricing)
A method in which the price is tied to a market index instead of a fixed figure – for example “LME copper average of the shipment month + USD 85/t premium”, “Platts Dated Brent + USD 2.50/bbl” or “ICIS PP homopolymer CFR Türkiye monthly average minus 1 %”. The pricing period (B/L month, arrival month or quotational period, QP), the index source and the exchange rate used for payment must be stated clearly in the contract. In term contracts it protects both parties fairly against price swings.
Full entry and related terms in the glossary →
Price reporting agencies (Platts, Argus, ICIS, Fastmarkets) (PRA)
Independent organisations that collect deals, bids, offers and market talk for commodities not traded on exchanges – or whose physical markets differ from exchange prices – and publish daily or weekly assessed prices. S&P Global Platts and Argus are benchmarks for oil, LNG, fertilisers and coal; ICIS and ChemOrbis for petrochemicals and plastics; Fastmarkets (Metal Bulletin) for metals, ores and paper; CRU for steel and aluminium. Their prices serve as indices in formula-priced contracts and are audited against IOSCO principles.
Full entry and related terms in the glossary →
London Metal Exchange (LME) and commodity exchanges
The exchange that sets global reference prices for non-ferrous metals such as copper, aluminium, zinc, nickel, lead, tin and cobalt; its official prices and monthly averages are used as indices in physical contracts. A physical buyer pays the LME price plus a premium that depends on origin, brand and delivery location (e.g. the Rotterdam aluminium premium). Other key exchanges: CME/COMEX (copper, gold), ICE (Brent, cocoa, coffee, sugar, cotton), CBOT (soybeans, corn, wheat), SHFE (Shanghai metals), DCE and ZCE (Chinese plastics, iron ore and agricultural futures) and Bursa Malaysia (palm oil).
Full entry and related terms in the glossary →
Hedging (price-risk management)
Offsetting the price risk of physical buying and selling by taking an opposite position in derivatives such as futures, forwards, options or swaps. A cable maker taking copper in three months can buy LME copper futures today to protect against a price rise, while a trader that has sold at a fixed price sells futures. Forward FX contracts manage currency risk in the same way. Hedging is not speculation: the aim is to protect the margin rather than to make a profit, though margin calls and basis risk must be managed.
Full entry and related terms in the glossary →
Contango and backwardation (forward curve)
Terms describing futures prices relative to the spot price. In contango, deferred prices are above spot, usually reflecting ample supply and the cost of carry – storage, financing, insurance – which makes holding stock and selling forward attractive. In backwardation, spot is above futures, signalling a tight market where prompt material is scarce and pushing buyers to secure supply quickly. The shape of the curve is an important signal for raw material stock policy and contract timing.
Full entry and related terms in the glossary →
Force majeure
A contract clause covering events beyond the parties’ control that could not be foreseen or avoided – war, earthquake, epidemic, embargo, port closure – which temporarily or permanently prevent performance. A good clause lists the events, sets a notice period (often 7–14 days), defines the evidence required (e.g. a chamber of commerce certificate) and gives a right to terminate if the event lasts beyond a set time. Price increases or market changes are normally not force majeure.
Full entry and related terms in the glossary →
Arbitration (international commercial arbitration)
Resolution of a dispute by arbitrators chosen by the parties instead of state courts, in a confidential and final procedure. Institutions such as ICC, LCIA, SIAC or ISTAC, or the rules of commodity associations (GAFTA, FOSFA, LME), are commonly used. Thanks to the New York Convention, awards can be recognised and enforced in more than 170 countries, which usually makes arbitration more effective than litigation between parties in different countries. The clause should name the institution, seat, language and number of arbitrators.
Full entry and related terms in the glossary →
GAFTA and FOSFA standard contracts
London-based trade associations that provide standard contract forms, sampling and analysis rules and an arbitration system: GAFTA (Grain and Feed Trade Association) for grains, pulses, feed and spices, and FOSFA (Federation of Oils, Seeds and Fats Associations) for oilseeds, vegetable oils and animal fats. Much of the world’s grain and vegetable-oil trade is done by reference to forms such as GAFTA 100, GAFTA 64 or FOSFA 54. Because these forms settle quality determination, late shipment, default and arbitration in advance, they cut negotiation time and legal risk.