On November 18, the "First China Wood Industry High-Quality Development Conference (Dalian Forum)," hosted by the China Timber & Wood Products Distribution Association (CTWPDA) and supported by the Dalian Municipal Bureau of Industry and Information Technology, the Dalian Municipal Bureau of Commerce, the Dalian Wood Industry Association, and other organizations, was held in Dalian. The conference brought together over 600 representatives from industry associations, industrial enterprises, financial institutions, local governments, and foreign institutions in China. Under the theme "Futures-Spot Linkage, Connecting the Future," the conference focused comprehensively on strategies for the high-quality development of China's wood industry.

New Changes in the Wood Industry

Wood serves as a crucial foundational raw material for national economic development and green growth. The stability of its supply chain and the upgrading of the industry are not only vital to the national economy and people's livelihoods but also to national ecological security and timber security. China's wood industry has undergone over 30 years of rapid development, growing from small to large, from weak to strong, with its scale expanding from tens of billions to over ten trillion RMB, and its industrial chain evolving from simple to comprehensive. Currently, over 100 countries export timber to China, and China exports wood products to more than 180 countries and regions, making it the world's largest producer, consumer, and trader of timber and wood products.

The listing of log futures and options represents a concrete practice of the futures market in serving the development of the modern forestry system and enhancing the supply guarantee capacity for important bulk commodities. After a year of careful cultivation, log futures and options have shown initial results in serving the high-quality development of the wood industry and enhancing China's influence in the international timber market.

According to Futures Daily reporters, since their listing a year ago, log futures have operated steadily with an increasingly solid industrial foundation. The cumulative trading volume of log futures and options has exceeded 7.8 million lots, with a cumulative turnover of RMB 464 billion, and average daily open interest of 53,400 lots. Over 400 enterprises have participated, including all major import leaders. At the same time, log futures provide a market-based and refined "price navigation" for stabilizing business operations and optimizing resource allocation.

Reporters noted that over the past year, log futures have played a significant role in promoting the construction of a unified national market. Multiple industry insiders stated that log futures, guided by national standards, have effectively reversed the long-standing industry pain point of inconsistent scaling standards, providing a "standard anchor" for the construction of a unified national market. The 19 futures delivery warehouses across six provinces and autonomous regions have also facilitated the optimal allocation of high-quality timber resources on a larger scale across the country.

Furthermore, DCE, together with industry associations and multiple enterprises, has promoted the release and implementation of intelligent log inspection standards. The inspection efficiency has been increased by more than five times compared to traditional manual inspection, injecting strong "futures momentum" into the digital and intelligent upgrading of the industry.

Liu Xin, General Manager of Shandong Port Rizhao Lingang International Logistics Co., Ltd., told reporters that for a long time, the timber industry has faced varying degrees of "scaling discrepancies." For the same imported radiata pine, measurement results for diameter and length could differ between ports or even between companies, causing considerable trouble for spot trade and cost/income accounting for enterprises.

"Since the listing of log futures, particularly since the implementation of physical delivery, the concepts and practices of national standard scaling and machine scaling have gradually become popular in the industry, forcing enterprises to align their purchasing and sales practices with national standards, thereby helping to improve the standardization and transaction efficiency of the industry," Liu said.

As a state-owned enterprise with log import volumes consistently ranking among the top three nationwide, Dong Xu, General Manager of Jiangsu Suhao Zhongjin Development Co., Ltd., recognized the listing of log futures and the promotion of national standard scaling. "When conducting business in Jiangsu and Shandong, we could clearly feel differences in scaling standards between the two regions. However, after the listing of log futures, everyone began to engage more with and use national standard scaling, which is beneficial for the future development of the industry," he said.

New Concepts in Risk Management

The hedging function of log futures was also a focus for participating enterprises.

"To preserve and increase the value of state-owned assets, we have a need to hedge risks, and log futures precisely help us stabilize returns," Dong Xu explained. He added that the company is building a "trade, storage, futures, banking, and logistics" system, which includes integrating the price discovery and hedging functions of futures into procurement, sales, and inventory decisions, thereby achieving a transition from "relying on nature" to "planning with knowledge."

A representative from the timber business unit of Zhejiang Materials Senhua Group Co., Ltd. (hereinafter referred to as Senhua) told reporters that in recent years, log prices have often been inverted, with import prices higher than port sales prices for eight months or even longer in a year, causing significant difficulties for companies. Log futures, he noted, serve as an excellent safeguard. For instance, in the first half of this year, the company executed two batches of sell-hedging operations at prices around RMB 870 per cubic meter and RMB 830 per cubic meter, effectively offsetting losses in the spot market.

"In the past two years, foreign suppliers have quoted radiata pine at around USD 115–120 per cubic meter. Previously, when port prices fell, timber traders could only endure the losses, and a single shipment of logs from New Zealand could mean losses of several million RMB. But it's different now. Through hedging, even if spot prices fall, gains in the futures market can offset losses in the spot market," Liu Xin remarked.

Li Qing, Chief Researcher and Head of the Agricultural Team at CITIC Futures Research Institute, explained that enterprises at different stages of the log industry chain—upstream forest farms, mid-stream traders, and downstream processing plants—face different risk exposures. However, they can all manage these exposures by participating in log futures and options. He elaborated that the application of futures and options by enterprises can be divided into different levels: the primary level involves using futures hedging to stabilize returns; the intermediate level involves establishing virtual inventory and engaging in basis trade through the futures market; the advanced level involves comprehensive utilization of options.

"Depending on their business reality, risk situation, and familiarity with futures and options instruments, different enterprises can choose appropriate tools and strategies," Li said.

From the perspective of serving domestic forestry, Xia Qi, Head of the Research & Development Department and Industry Department at CITIC Futures Co., Ltd., told reporters that Chongqing is a major producer of domestic timber in Southwest China. Local forest farms and enterprises are closely monitoring the possibility of using log futures for risk management. Last week, his company just organized a domestic log futures delivery in Chongqing, providing valuable experience for local forest enterprises to participate in and utilize the futures market.

New Surprises in Import Trade

During exchanges, reporters found that over the past year, foreign exporters' attitudes toward log futures have undergone a "180-degree" shift.

The representative from Senhua mentioned earlier told reporters that the listing of log futures has brought a surprising change: the transformation of the industry's spot pricing model.

"Previously, pricing power in the industry lay mainly with resource owners, i.e., foreign exporters. They adjusted prices slowly. Even if market conditions were poor, it might take two months for them to lower quotes. But with the futures price, there is now a reference reflecting forward market expectations. Domestic importers decide their purchasing rhythm and negotiate with foreign suppliers based on this. Now, foreign suppliers pay close attention to log futures, proactively inquire about fluctuations from us, and adjust prices much faster. Sometimes they adjust prices shortly after quoting," said Zhang Ruiqun, Deputy General Manager of Senhua.

"Previously, foreign exporters set timber prices unilaterally. They were generally unapproachable, hard to meet even once a year, and gave different quotes to each importer. Now it's different. Foreign suppliers have started visiting China proactively for exchanges, and prices are negotiable. For example, we might sign a contract at RMB 118 per cubic meter, but if the price drops later, settlement can be based on the latest price," an industry insider said. He noted that while this is partly due to foreign suppliers' desire to maintain sales volumes amid this year's poor market conditions, it is also undeniably linked to the increased market influence brought about by log futures.

"This shift in pricing method is a trend and is irreversible. Foreign suppliers initially didn't believe log futures could be listed, but now they are considering how to participate," the industry insider added.

"With log futures, we can refer to the market prices and negotiate with foreign suppliers. Ultimately, it's the market that decides," Dong Xu said.

New Future for Futures-Spot Integration

Various sectors are full of expectations for the future development of China's timber industry and log futures.

Zhao Dong, Vice Mayor of Dalian Municipal People's Government, stated in his address that Dalian has a solid foundation for the wood industry, a favorable open environment, and strong financial support. Dalian will promote the coordinated advancement of the wood industry chain and supply chain, striving to build a timber distribution and deep-processing hub in Northeast Asia and help more wood products from Dalian reach the national and global markets.

Li Jiafeng, President of CTWPDA, stated that the wood industry is a perennial and evergreen industry—a sunrise endeavor beneficial to both the country and the people. China is currently in a critical stage of high-quality development. As an important component of the national economy, the wood industry faces an urgent need for transformation and upgrading, while also encountering historic opportunities for innovation and breakthroughs. The listing of log futures and options marks a profound transformation in the history of the wood industry, signifying that the traditional wood industry has taken a solid step towards embracing modern financial tools and exploring the integration of industry and finance. He expressed hope that industry peers would use this conference as an opportunity to deeply grasp the connotation of "futures-spot linkage," continuously enhance the industry's risk resilience and comprehensive competitiveness, integrate resources, complement each other's advantages, and propel China's timber and wood products industry towards a development stage with better structure, higher efficiency, and superior quality.

Reporters from Futures Daily learned at the conference that, moving forward, DCE will closely focus on the core objectives of serving the high-quality development of the wood industry and the construction of a modern industrial system. Through greater commitment, more concrete measures, and superior services, DCE will continuously inject financial "vitality" into the high-quality development of the wood industry. First, it will continuously optimize products to enhance the global influence of "China Prices." It will closely track changes in the national and global timber trade landscape, continuously optimize contract rules, and strive to make "China Prices" better reflect regional and even global supply and demand, providing a pricing reference for the global timber trade. Second, it will deepen the integration of futures and spot markets to create an "efficiently coordinated" modern circulation system. It will vigorously promote flexible business models such as exchange-for-physicals and negotiated delivery, fostering the deep integration of futures and spot markets, and commodity and financial markets, providing a "DCE solution" for building a modern timber industry circulation system. Third, it will adhere to precise support to build a symbiotic industrial service ecosystem. It will deepen the "three-party linkage" with associations and enterprises, upgrade "one-on-one" customized services, implement "order-based" talent cultivation, and extensively promote new models such as basis trade and options-embedded trade, extending risk management tools from "industry leaders" to the "entire industrial chain." (Futures Daily, Yao Yibing)

(Source: Futures Daily)