On October 25th, the China Securities Regulatory Commission announced its approval for the Dalian Commodity Exchange to register futures and options for log trading. In conjunction with this announcement, the Dalian Commodity Exchange released the contracts and related regulations for log futures and options, while also calling for designated delivery warehouses and truck delivery locations for log futures.
Logs, essentially cylindrical wood segments produced after tree felling and cross-cutting, are primarily categorized into softwood and hardwood. Softwood logs are particularly concentrated in their uses, serving as key materials for construction lumber, engineered wood products, and furniture manufacturing. China currently holds the title of the world’s largest importer of softwood logs, but in recent years, price volatility has heightened the demand among importing companies and downstream processing firms for risk management tools and forward price references, creating an urgent need for the availability of log derivatives.
The upcoming log futures will focus on softwood. In designing the quality standards for log futures delivery, the Dalian Commodity Exchange has referred to relevant national standards, considering various factors such as shape, species, length, diameter, and surface defects. To manage price volatility, the exchange has set daily price fluctuation limits at 4% of the previous trading day’s settlement price, with a minimum trading margin requirement of 5% of the contract value.
Regarding options, the newly introduced log options will align with the existing framework of options contracts already listed on the exchange. Like other options, they will be classified as either call or put options, with a minimum price fluctuation of half the minimum fluctuation of the underlying futures contract. The strike prices will encompass a range that corresponds to 1.5 times the allowable price fluctuation of the underlying futures.
A representative from the Dalian Commodity Exchange indicated that the launch of log futures and options will enhance the ability of companies within the related industries to manage price risks and improve the pricing mechanism for logs. The exchange plans to strengthen its oversight of trading activities, collaborating with all stakeholders to enhance industry participation and continuously boost the impact of log futures pricing in both domestic and international markets.
