On October 25th, the China Securities Regulatory Commission announced its approval for the Dalian Commodity Exchange to register futures and options for logs. On the same day, the exchange rolled out contracts and relevant regulations for these futures and options, also initiating a public call for designated delivery warehouses and delivery locations for log futures.
Logs are cylindrical sections of wood that result from the cross-sectional cutting of trees. They can be categorized into two main types: softwood and hardwood. Softwood is primarily used in construction, engineered wood products, and furniture making. Currently, China stands as the world’s largest importer of softwood logs. However, fluctuations in pricing over recent years have heightened the demand among log-importing companies and downstream wood processing businesses for risk management tools and reference pricing through futures derivatives.
The upcoming log futures will focus on softwood. In alignment with spot market practices, the Dalian Commodity Exchange has designed the delivery quality standards based on relevant national standards, considering parameters such as form, species, length, measurement diameter, and appearance defects. Regarding risk management, the exchange has established daily price limits for futures contracts at 4% of the previous trading day’s settlement price and a minimum trading margin requirement set at 5% of the contract’s value.
As for the options, the log options will follow a design framework similar to the options already listed on the exchange. The contracts will include both call and put options, with the minimum price fluctuation set at half of the minimum fluctuation of the underlying futures contract. The strike price will cover a price range of 1.5 times the daily price limit of the underlying futures.
A representative from the exchange’s relevant business unit stated that the introduction of log futures and options will significantly aid companies in the related industry chain in managing price risks and enhancing the price formation mechanism for logs. The exchange is committed to strengthening comprehensive regulatory oversight of various trading activities and fostering collaboration among stakeholders to continually boost industry participation and increase the influence of log futures prices in both domestic and international markets.
