US lowers duties on Canadian timber
The US Commerce Department today released its third administrative review of Canadian softwood lumber duties and lowered the rate from 17.99% to 11.64%.
Lumber isn’t in the headlines as much as it was six months ago, but prices had another stretch in the fourth quarter and early this year before falling again in the past two weeks.
I believe that housing in the United States should see a long-term secular increase after a decade of underbuilding. Prices are high and homebuilders are eager to deal as supply chain issues are sorted out.
Lumber prices will benefit and I expect them to remain consistently high, well above the near $500 highs of the last housing boom, largely because there are now fewer Canadian offer. The renovation market is also in a secular transition towards more activity.
Canada and the United States have been fighting over softwood lumber for generations. The main problem is that virtually all of Canada’s forest land is Crown land, while US forest land is private. This creates a dispute over what stumpage fees should be applied to Canadian trees.
In November, US tariffs were raised to 17.99% from 8.99%. This decision in no way ends the fight and I don’t think either side wants to start negotiations.
In terms of FX, there is a real impact. Canadian exports of wood products were Canada’s third largest export to the United States last year. The new rates will not come into effect until the fall and are then expected to remain in effect for a year.
Here’s CIBC’s take:
Canadian lumber producers are expected to see their tariffs reduced in the second half of the year, with rates falling from around 18% to around 12%. This is higher than the mid-single digit rate we were anticipating.. Based on W. SPF’s current pricing tiers (~$1,200/mfbm), fees will drop from $182/mfbm to $124/mfbm. While this is a significant improvement in the cost curve for Canadian producers at mid-cycle prices, it is relatively insignificant in the current commodity environment, as there is no idle capacity waiting to come back online in Canada
with lower rights.