The U.S. government’s roughly 20% countervailing duty imposed against Canadian softwood lumber in April and its expected antidumping duty in June will cause prices to decline a bit over the next few months, but ultimately will lead to both higher prices and volatility, one of the nation’s premier lumber market analysts predicts.
“Initially, mills will try to pass on their increased costs,” Paul Jannke, a principal at Forest Economic Advisors (FEA), writes in an advisory sent to clients on April 26. “However, the CVD [countervailing duty] was already priced into the markets, so the increases will not stick." In fact, prices likely will drop in the near term because some traders had expected larger tariffs than the ones actually imposed.
"Longer run, the CVD will cause prices to be higher and more volatile than they would otherwise have been,” the advisory continues. Jannke says this has been the case virtually every time since the 1980s that the U.S. and Canada have been embroiled in this dispute.
The veteran analyst also predicts that rises and falls in the markets will lead buyers to substitute species—swapping SPF lumber for southern yellow pine, for instance. Higher Canadian prices, therefore, will boost prices of U.S.-grown lumber as well, he says. One result is that the share of Canadian lumber in the U.S. market will drop only gradually over the next two years, to just below 30% vs. around 33% today.
The duties announced April 24 were widely expected to run around 20%, and for most imports they were set at 19.88%. Some companies had specific subsidy rates set: J.D. Irving Ltd., 3.02%; Resolute FP Canada Ltd., 12.82%; Tolko Marketing and Sales Ltd. and Tolko Industries Ltd., 19.50%; Canfor Corp. 20.26%; and West Fraser Mills Ltd., 24.12%. The Department of Commerce stated in its fact sheet that U.S. Customs and Border Protection will impose some of the tariffs retroactively, up to 90 days prior to the publication date of Commerce’s determination in the Federal Register. That is expected to occur on April 28.
Antidumping duties this June are expected to add another 5 to 10 percentage points to the price.
The higher prices generally are good news for dealers because they take in more money on every truckload of lumber that they sell, and the tariffs basically add more than $1 billion in cost to a product whose 2016 imports were valued at $5.66 billion. But price hikes are bad news for dealers’ customers, particularly new home builders, and the National Association of Home Builders (NAHB) was among the loudest groups this side of the border to criticize the action.
“If the 20% lumber duty remains in effect throughout 2017, NAHB estimates this will result in the loss of nearly $500 million in wages and salaries for U.S. workers, $350 million in taxes and other revenue for the governments in the U.S., and more than 8,200 fulltime U.S. jobs,” NAHB Chairman Granger MacDonald said in a news release. The jump in lumber prices since the start of 2017 already have added nearly $3,600 to the price of a new single-family home, he said.
Nevertheless, it's widely believed among dealers that builders will end up paying the higher prices. Lumber is very much a supply and demand industry, Bill Hesselgrave of Manion’s Wholesale Building Supplies in Superior, Wis. noted to a local TV station. And with new home construction at its highest rate since 2006, demand is there.
Meanwhile, in New Hampshire the Concord Monitor noted one fact that might have been overlooked by officials in Washington: Some of that Canadian lumber that's being hit with a tariff was produced from timber grown in New England and shipped to Canada for processing. Roughly half of the 115 million board feet of logs that New Hampshire produced in 2014 went up to Canada to be processed into lumber, the newspaper reported.