With Americans buying more new homes than at any time since the recession, the cost of the wood used to build them is rising.

Lumber prices are off to their biggest rally in more than a decade, touching a 19-month high last week as demand increased from builders. But almost a third of all wood used in U.S. homes comes from the world’s top exporter, Canada, where surging shipments have compounded a trade dispute and increased the chances of import tariffs that may top 30 percent. That spells trouble for producers including West Fraser Timber Co. and Canfor Corp.

While the two countries have until October to iron out a new softwood lumber trade agreement to replace one that expired last year, imports are flooding into the U.S., intensifying opposition from American producers who say their northern neighbors get unfair subsidies. Canadian exports accounted for most of the increased demand from U.S. builders this year through April, Bloomberg Intelligence estimates. “Canada is shipping so aggressively into the U.S., you’re going to stoke the fears there,” said Kevin Mason, managing director of ERA Forest Products Research, a Vancouver-based financial research company.

With demand for lumber slowing in Asia, Canada stepped up sales to its southern neighbor, by far its biggest customer. Exports surged to 7.45-billion board feet of lumber in the first half of the year, up 20 percent from the same period a year earlier, government trade data show. Growth has been fueled by a rebound in the U.S. housing market. But American producers aren’t getting much of the new business. Of the 1.9-billion board feet of increased demand this year through April, 1.6-billion came from Canada, Joshua Zaret, a Bloomberg Intelligence analyst, said in a July 15 report.

The discrepancy probably will harden the U.S. position in negotiations, he said. In a letter last week to U.S. Trade Representative Michael Froman, 25 Senators said any new agreement with Canada on lumber must include strong protections for domestic jobs, noting the adverse impact of subsidized supplies over decades. David MacNaughton, Canada’s ambassador to the U.S., said the pact must be flexible and that “inflated rhetoric” will complicate efforts to find a solution.

From The Globe And Mail: http://www.theglobeandmail.com/news/british-columbia/housing-boom-spurs-canada-lumber-surge-as-us-mulls-import-duty/article31188619/