How may we
assist you?

Hedge your transactions
against significant
changes in commodity
prices

Select one of several available product
modifications.

USEFUL INFORMATION

  • Solution for clients who wish to hedge risk of adverse changes in commodity market prices
  • Intended for individuals and legal entities, both domestic and foreign
  • Pre-agreed fixed forward price of a commodity is compared with daily closing prices or an officially quoted average commodity price (e.g. quarterly average) during the reference period
  • 2 to 5 business days from the end of the reference period, the difference between forward and market prices for the agreed commodity quantity is paid by the party in disadvantageous position
  • Transaction settlement is always financial, physicals are never exchanged
  • Settlement is calculated as PA = NA * abs(AVR - P), where:
    • PA – payment amount
    • NA – negotiated commodity amount
    • AVR – average price
    • P – agreed fixed price

Early termination of commodity swaps:

  • Transaction counterparties may agree to terminate commodity swaps early before maturity date
  • If a commodity swap is terminated early, parties settle the market value in a single payment - the transaction and any future liabilities thereby cease to exist

In addition to the standard product (plain vanilla commodity swap), three product modifications are available: 

Quanto

  • The underlying commodity is listed in a currency other than the settlement currency

Basket

  • The underlying asset is a basket of several commodities

Deferred price fixing

  • Fixed price is not known on the day the transaction is negotiated
  • Fixed price is determined on the basis of daily quoted averages over a specific future period  
  • Profit or loss from commodity transactions is affected by commodity price fluctuations
  • Clients will incur loss if the commodity prices move against them during an individual reference period – the clients’ payments exceed the amount to be paid by the bank
    • In this case, the client pays the difference between the two payments to the bank
    • In case the transaction was negotiated as a hedging instrument, the client regards the loss as cost of hedging (hedging protects clients from significant commodity price fluctuations that could result in financial problems)