Softwood Lumber Costs Reach Record Highs Thanks to Duties?

Originally published by: Financial PostNovember 16, 2017

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Softwood lumber prices in the U.S. soared to near-record highs Wednesday, as Canadian producers passed on higher export duties charged by the U.S. government straight on to American consumers.

Prices for KD Western S-P-F, a common benchmark for softwood lumber exported into the U.S., was trading above US$494, near its all-time high, that appear to neutralize any potential impact of increased duties placed on Canadian exporters.

Analysts say tightening markets are a key shift compared to the last time Canada and the U.S. were in a prolonged dispute over softwood lumber trade, which endured from 2001 to 2006.

“That’s what’s really different this time, is you have fundamentally very tight building materials markets — both for lumber and structural panels,” said Daryl Swetlishoff, the head of equity research at Raymond James Ltd. in Vancouver.

“As a result, you’ve seen Canadian lumber producers passing off 100 per cent of these duties that they’ve faced so far in 2017 right onto the backs of the U.S. consumer.”

In early November the U.S. Commerce Department slapped a 20 per cent duty on softwood lumber imports from Canada, after determining last spring the country was unfairly subsidizing the industry.

On Tuesday, a lawyer representing Canada hand-delivered a letter to the American NAFTA secretariat in Washington calling for a review of the U.S. stance on softwood lumber duties, according to The Canadian Press. The challenge falls under section 19 of NAFTA, a key mechanism used by Canadian companies to appeal countervailing and anti-dumping duties.

Chapter 19 establishes a panel of five arbiters, agreed upon by both countries, who will decide if the duties meet U.S. law. Without that mechanism, Canada would have to use the U.S. court system to make such a challenge.

Tariffs on Canadian lumber exports into the U.S. are not new.  Between 2006 and 2015, Canadian producers paid an average of about 11 per cent duties, compared to around 20 per cent today.

“This is a normal feature in this industry,” Swetlishoff said.

Canada and the U.S. have battled over softwood for decades and the disputes have been before both NAFTA and the World Trade Organization multiple times. The Canadian softwood lumber industry has used the courts to appeal trade duties five times in the past 35 years.

Softwood lumber disputes specifically are not being addressed in current NAFTA negotiations. The fifth round of NAFTA discussions officially begin Friday in Mexico City.

In a written statement, Foreign Affairs Minister Chrystia Freeland said Canada will “forcefully defend Canada’s softwood lumber industry.” 

“The U.S. Department of Commerce’s decision on punitive countervailing and anti-dumping duties against Canada’s softwood lumber producers is unfair, unwarranted, and deeply troubling,” she said.

Higher softwood lumber prices are a result of crimped supplies in Canada due to wildfires and the spread of the mountain pine beetle in the West. Meanwhile, U.S. demand has grown moderately.

Higher prices in the U.S. are particularly painful for some consumers, who are seeing increased building demand after Miami, Houston, and the surrounding regions were hit by severe tropical storms in recent months.  

Even so, analysts don’t expect the Trump administration to back off of its punitive duties on Canadian imports, despite the rise in demand. 

“That argument, as logical as it sounds, doesn’t hold a lot of water in U.S. politics,” said Kevin Mason, managing director at ERA Forest Products Research based in Vancouver.

High prices for lumber are not widely expected to last. Mason expects prices to level off closer to the US$400 range as the U.S. increases lumber imports from other countries and builders look for alternative materials and sources to softwood lumber.  

“We are going to see lumber prices fall from their current level,” he said.


For reference, below are SBC Magazine news articles about the SLA negotiation process published in 2017:

  1. Canadian Officials ‘Optimistic’ After Meeting with U.S. Coalition, January 22, 2017
  2. Lumber History Repeats Itself, and It's Gotten Ugly, February 21, 2017
  3. US Lumber Coalition Criticizes NAHB's Views on Tariff, May 22, 2017
  4. Lumber COALITION Thinks Circumvention Important, SBCA Agrees, June 5, 2017
  5. Softwood Lumber Agreement Needed Before NAFTA Negotiations?, June 12, 2017
  6. Canada Approves $605M to Develop Non-U.S. Lumber Markets, June 12, 2017
  7. Lumber Duties Announced, Optimism for an Agreement?, June 28, 2017
  8. SBCA Summarizes DOC's Extensive Analysis of Trade Actions, July 3, 2017
  9. What is Happening with the 'Handshake SLA'? Who May Stop It?, July 13, 2017
  10. Forestry Analyst Agrees New SLA Possible this Summer, July 17, 2017
  11. ‘Hot Market’ Remains Sticking Point for New Lumber Agreement, August 7, 2017
  12. SLA Trade Talks Continue, European Exports Explode, August 28, 2017
  13. DOC Issues Final Trade Duties on Canadian Softwood Lumber, November 2, 2017