Header: Header: Header:

With the expiry of the U.S.-Canada Softwood Lumber Agreement, the outcome of what is next features two main potential options. The impact of probable duties on Canadian lumber exports to the U.S. is one option and this will be a game-changer for different producing areas, and especially depending on the amount the initial duties will be and how much is passed on to the market. Punitive duties will simply raise the price of lumber in the U.S. to the point where enough lumber from Canada is shipped to the U.S. in combination with imports from Europe. Essentially a new “floor price” will be established with less total imports and increased U.S. lumber production.

Or, the other option could be a volume-based quota that is imposed to limit annual, quarterly or monthly Canadian shipments to the U.S. In peak demand periods, a quota would hold back Canadian lumber exports or else very punitive penalties would be imposed on excess volumes. As Canada’s share of the U.S. softwood lumber market has averaged about 31% from 1995-2015, a 1% drop is close to 500 million bf. Some U.S. proposals are rumored to be setting a quota on Canada’s market share of U.S. consumption at 22%. In 2015, U.S. imports of Canadian lumber were 13.1 billion bf (29.5% of U.S. consumption). A 22% quota would suggest an immediate drop of Canadian lumber imports to the U.S. of some 3.5 billion bf, or 10% of total Canadian production. This severe scenario makes little sense, as where the U.S. get its lumber in the short term. I suppose that is not the concern of the American side as long as lumber prices (and log prices) go through the roof and create a windfall for U.S. mills and timberland owners.

As WOOD MARKETS has reported a number of times in its global benchmarking reports, U.S. South mills are already achieving the highest sawmilling margins in North America (and the world). “It is difficult to understand how the U.S. South, which is the largest producing region in North America, could have any specific complaints on Canadian lumber shipments, or shipments from any other region,” stated Russ Taylor, President. “The argument is different in the U.S. West, as the impact of strong log export shipments to China and Japan and generally tighter domestic log supplies have limited production and margins at sawmills since the U.S. West has the highest delivered logs in North America – some 70% higher than in the US South.” Throw in the 15% devaluation of the Canadian dollar vs. the U.S. dollar and the U.S. West industry is looking for a way out, even though the provinces of B.C. and Quebec have had long standing timber sale programs that tie stumpage rates to market log prices.

From Wood Markets: https://www.woodmarkets.com/understanding-market-impact-duties-canadian-lumber-exports-us/