Producers

For a producer, a swap allows you to achieve a fixed price on an agreed notional quantity of your product.

The transaction is cash settled on the contract maturity date, as we don't take physical delivery of the commodity at the bank. The price used to calculate the cash settlement amount is the Commodity Reference Price (CRP). The CRP is the floating swap price for the relevant commodity, based on the prices quoted on a reference Futures Exchange for that commodity.

Benefits

  • ​Secures a price for a portion of your deliverable product.
  • Assists you in protecting against adverse commodity price movements.
  • Enables you to fix a price for up to 3 years; the physical market is generally much shorter.
  • Is not commodity grade-specific, unlike most physical sales.

Points to consider

  • It may remove all or part of the benefit from any favourable movement in the sale price of your product.
  • You're still exposed to basis risk which can occur when the sale of the underlying physical commodity does not exactly correlate with the underlying swap value.

Who might need it?

If you're a producer who wants to manage the risks associated with exposure to adverse movements in the prices you receive for commodities and are looking for greater certainty for planning and budgeting purposes.

Example 1

At mautrity, if the fixed price is greater than the CRP, then we'll pay the cash settlement amount to you.

  • Fixed price AUD Commodity Swap = $100 per tonne
  • Commodity Reference Price at maturity = $80 per tonne
  • NAB will pay you = $20 per tonne

Example 2

At maturity, if the fixed price is less than the CRP, then you pay us the cash settlement amount.

Fixed price AUD Commodity Swap = $100 per tonne

Commodity Reference Price at maturity = $130 per tonne

You'll pay us = $30 per tonne

Consumers

For a consumer, a swap allows you to achieve a fixed price on an agreed notional quantity of your product.

The transaction is cash settled on the contract maturity date, as we do not physically deliver the commodity to you.

The price used to calculate the cash settlement amount is the Commodity Reference Price (CRP).

The CRP is the floating swap price for the relevant commodity, based on the prices quoted on a reference futures exchange for that commodity.

Benefits

  • ​Secures a price for a portion of your deliverable product.
  • Assists you in protecting against adverse commodity price movements.
  • Enables you to fix a price for up to three years; the physical markets is generally much shorter.
  • Is not commodity grade-specific, unlike most physical sales.

Points to consider

  • It may remove all or part of the benefit from any favourable movement in the physical cost of your product.
  • You're still exposed to basis risk which can occur when the purchase of the underlying physical commodity does not exactly correlate with the underlying swap value.

Who might need it?

If you’re a consumer who wants to manage the risks associated with exposure to adverse movements in the prices you pay for commodities and are looking for greater certainty for planning and budgeting purposes.

Example 1

At maturity, if the fixed swap price is less than the CRP, we'll pay the cash settlement amount to you on the settlement date.

  • Fixed price AUD Commodity Swap = $100 per tonne
  • Commodity Reference Price at maturity = $120 per tonne
  • We'll pay you = $20 per tonne

Example 2

At maturity, if the fixed price is greater than the CRP, then you pay us the cash settlement amount on the settlement date.

  • Fixed price AUD Commodity Swap = $100 per tonne
  • Commodity Reference Price at maturity = $70 per tonne
  • You'll pay us = $30 per tonne

Any advice on this webpage does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. Before making any decision in relation to this information, you should consider the Product Disclosure Statement available at Financial Markets or by calling 1800 307 827. The products on this webpage are issued by National Australia Bank Limited ABN 12 004 044 937 AFSL 230686.

Please consider our Financial Services Guide.

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