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Standard Bank Offshore links to commodities

Standard Bank Offshore has brought out a structured product that is linked to an equally weighted basket of commodities for a four-year term.

Core Commodity Trigger can be accessed in two ways. Sophisticated investors with a minimum of £50,000 can invest through the Structured Growth Solutions medium term note, while retail investors with at least £10,000 can invest through the Structured Guaranteed Solutions fixed term deposit.

Both versions of the product are linked to the price of aluminum, copper, zinc and Brent crude oil in US dollars.
Investors will benefit from a full capital return regardless of the performance of the commodity basket.

To calculate the returns, the price of each commodity within the basket is recorded on November 24, 2006 and an average figure, which takes into account all these prices, will be produced. This is compared with an average of the prices over the final 12 months of the term.

If there is no growth in the basket at the end of the term, investors will receive only their original capital. If the commodity prices have risen, investors will receive their original capital plus a return based on the greater of 40 per cent of their original investment or 100 per cent of the growth in the commodity basket.

According to Standard Bank Offshore, the commodities it has chosen for this product are expected to benefit from long-term demand from emerging markets such as Brazil, India, China and Russia, as well as developed countries in the West.

Demand for aluminum is being driven by construction and expansion within the transport industry, while reduced output could limit supply and drive prices higher. Copper is needed to upgrade the electrical system in China and there are also constraints on supply.

Similarly, zinc could benefit from growth in the construction industry, while crude oil prices are being pushed up by refinery capacity shortages, political problems in oil producing countries and string demand.
Commodities have had a good run, but recent setbacks highlight how volatile the sector can be. While this product will smooth the peaks and troughs, the risk is that investors may end up with only their original capital after four years.


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