US Tariff Hike

In a recent order by The US Commerce Department, the USA has decided to raise duties on Canadian softwood lumber exports to the US from 9% to 17.9%, with a final decision of countervailing and antidumping duty rates on Canadian softwood lumber imports as follows:

The rates will go into effect after they are published in the federal register, which will happen on November 30, 2021.

The softwood lumber dispute between Canada and the United States is one of the major and longest-running trade disputes between the two countries. This dispute started in 1982, and its consequences may still be felt today. The notion that the Canadian lumber sector is unfairly supported by federal and provincial governments is at the center of the debate, as most wood in Canada is held by provincial governments. The rates paid for wood harvesting (stumpage fee) are established administratively rather than through a competitive marketplace, as is the standard in the United States. Softwood timber lots are privately held in the United States, and the owners represent a strong political lobby. The US alleges that the Canadian arrangement is an unfair subsidy and thus susceptible to U.S. trade remedy statutes, under which foreign commerce benefitting from subsidies can be subject to a countervailing duty tax to counteract the subsidy and bring the commodity price back up to market prices.

 Impact of The Latest Hike

The Canadian government and businesses have criticized the rate increase, while the lumber sector in the US especially south of the border has appreciated it. Rising housing costs, as the United States faces a national home affordability issue, will undoubtedly influence affordability in the short and long term. This would aggravate the plight of house builders who are already dealing with timber supply chain bottlenecks and high building costs. On the other end of the scale, consumers will face greater costs, on top of growing inflation, increasing mortgage rates.

However, there is some good news for US lumber producers because of the current tariff regime, which penalizes Canadian Lumber producers in favor of US producers and the US. In 2021 Lumber Coalition expects to produce 17.5 billion board-feet of additional timber. This increased volume is a direct result of the high tariff put on Canadian lumber leading to more demand for the US produced lumber.

The Canadian government has committed to contesting these unreasonable and harmful levies via all available avenues; however, only time will tell if this increase will result in higher lumber prices, which have already more than quadrupled to all-time highs in the previous year.

Floods in BC Creating Supply Chain Issues in The Lumber Industry

On the other front, The Lumber Industry is facing the challenge of a “100-year storm”, in BC and Washington State impacting roads, rails, and bridges. Vancouver has been impacted the most as it is cut off from all main roads and rails.

The business impact of this storm has been huge, and businesses are expected to be back to business as usual before New Year. Lumber supply is expected to be impacted from BC and Washington State, creating a supply shortage and thus driving the prices high.

So with the increase in lumber prices and supply chain vows in BC and Washington, the year 2022 is set to see high lumber prices of USD 1000/Mbf. Already, on November 19, Random Lengths published prices for W-SPF 2×4 #2 (FOB BC Mills) of US $620/Mbf, which is up from $555 the last week.

COP26 Deforestation Pledge to Impact Lumber Supply

The COP 26 Glasgow Leaders' Declaration on Forests and Land Use, signed by almost 120 countries (including Russia, Sweden, Finland), pledges them to end all deforestation by 2030. However, the declaration also stated that as long as fresh trees are planted to replace those that are taken down, the COP26 duties allow for continuous forest removal. This might have a substantial influence on the global market for lumber, since major timber-producing countries would restrict logging operations, resulting in a global lumber scarcity. However, the results of the previous 2014 New York Declaration show that similar agreements don’t stop deforestation in signatory countries. It is more likely that governments will expand efforts to plant trees to comply with the same while reducing logging just a little. The increasing demand for timber in the building industry will reduce the chances of slowing down the rate of global deforestation. Hence, only time will tell what impact this declaration will have on the timber industry but in short, this does not seem to be a major cause of concern.