Recently, an official of the agricultural products business division of Dalian Commodity Exchange (DCE) said in an interview that in the process of researching the futures of the “two boards”, China’s first futures products in the forestry sector, DCE has conducted extensive survey and research on the basis of the principle of serving the real economy and reflecting the demand in spots, in accordance with requirements in production process and with respect for the spot trade practices, thus having designed the fiberboard and the plywood futures contracts by taking the opinions of producers and scientific research institutions into consideration.
The official said that on the industry chain, the fiberboard and plywood connect with wood and chemical raw materials in the upstream, and involve the furniture, decoration, packaging, automobile manufacturing and other industries in the downstream. DCE has selected the medium density fiberboard (MDF) and the block board as the traded objects of the “two boards” contracts, in light of the representative status of the two products in their own market segments.
According to the sources, in 2012 China’s total output of fiberboard amounted to 55.54 million cubic meters (or about 1.22 billion sheets), of which the MDF achieved an output of about 49.3 million cubic meters (or about 1.08 billion sheets), accounting for approximately 90% of the total, representing an absolute predominance in amount, hence a representative product of fiberboard. With respect to the subdivided purposes of the MDF, the furniture-oriented MDF has the largest market size with an output of about 25 million cubic meters (or about 550 million sheets). Driven by the urbanization, the furniture-oriented MDF will continue to maintain a larger market share in a long period of time, and moreover, there are special standards for the furniture-oriented MDF in the national standards. Therefore, DCE has set the furniture-oriented MDF stipulated in the national standards as the traded object of the fiberboard contracts.
With regard to the selection of the traded object of plywood, the official said that in 2012 China’s total output of plywood amounted to 140 million cubic meters, among which, the output of the veneer plywood reached about 91 million cubic meters (or about 2 billion sheets), accounting for 65% of the total, and the block board ranked second with an output of about 20.34 million cubic meters (or about 450 million sheets), accounting for 17.85% of the total. Among all kinds of veneer plywood, the film faced plywood took the largest output at about 30.62 million cubic meters (or about 670 million sheets), accounting for 26.87% of the total plywood production. Although the output of the film faced plywood was larger than that of the block board, the price of the block board is higher, resulting in the similar market size to the film faced plywood after calculation on equal basis. Moreover, the film faced plywood is mainly used in building construction without high requirements for quality or corresponding national standards; the block board is used for interior decoration and furniture with high quality requirements and the dedicated national standard (GB / T 5849-2006), and furthermore, the resin content of the block board per cubic meter is only half that of the film faced plywood, which is in line with the future development of the industry. Therefore, DCE has set the block board as the traded object of the plywood futures.
Regarding the design of the trading unit at 500 sheets / lot, the official said that calculated according to the average prices of fiberboard and plywood at about RMB 75 / sheet and RMB 125 / sheet respectively, the contract value of one lot is about RMB 37,500 and RMB 62,500 respectively, and according to the margin ratios of 5% for DCE and 8% for the futures companies, the investors should pay the margins of RMB 3,000 and RMB 5,000 respectively, at the same level as the brisk products such as soybean meal and coking coal, which will conduce to the functioning of price discovery.
In determining the quotation unit, the official said that, in the fiberboard industry, the forms of quotation by cubic meter, ton and sheet have been found in the spot trade but used on different occasions: the statistics departments at all levels mostly adopt the cubic meter as the quotation unit, in export the quotation by ton is usually chosen to observe the international practices, most of the producers select the cubic meter for quotation and the quotation by sheet is mostly used in the process of distribution. Currently, the major domestic markets such as Hangzhou Plywood Market and Guangzhou Yuzhu Timber Market and many industrial information institutions adopt the sheet in price collection and quotation. In the plywood industry, except the unit of ton adopted by the State General Administration of Customs in the statistics of total imports and exports and the unit of cubic meter adopted by the National Bureau of Statistics in statistics, the sheet is adopted as the quotation unit in the whole spot trade. In addition, in the national standards of the two products, the size of the test sample and the number of the samples are also determined on the basis of sheet. Therefore, DCE has selected yuan (RMB) / sheet as the quotation unit.
The minimum price change of the futures contracts directly affects the efficiency and liquidity of the trading of the contracts. The official said, calculated according to the 2012 average prices of RMB 75 / sheet for fiberboard and RMB 125 / sheet for block board, when the fluctuation range of 4% for one price limit is reached, the number of fluctuations at RMB 0.02 / sheet is 150 and 250 respectively, and 60 fluctuations and 100 fluctuations respectively at RMB 0.05 / sheet, which are close to DCE’s existing products. Considering all the factors, DCE has set the minimum price change of the two boards at RMB 0.05 / sheet.
In the choice of the contract months, the official said that, the fiberboard and plywood production has no obvious seasonal characteristics in itself. Except the production declines caused by the factors such as the holidays in January and February, the productions in other months see no significant difference. Considering that the distribution model accounts for 70% of the trade of the two boards, the remaining 30% in the model of direct sales is mostly for the fixed long-term contracts and the dealers generally have stocks, the demand for hedging exists in each month. As the motor transport is the usual means for the transportation of the “two boards” and the trade radius is short, there exist no such problems as the inconvenience in delivery. Therefore, DCE has set all the months from January to December as the contract months.
An official of China National Forest Products Industry Corp. said that the fierce price fluctuations of the two boards in recent years have brought huge risks to the spot enterprises in production and operation. DCE has designed the futures contracts of the “two boards” effectively in line with the spot trade practices. The listing of the futures of the two boards will provide the spot enterprises with an instrument of risk management, so as to promote stable and healthy development of the industry.