Sustained high lumber prices in 2018 will cover the cost of final duties imposed by the US government on Canadian lumber imports, benefiting North American producers and timberland owners, Moody’s Investors Service a says in a new report.
“The continuation of tight lumber markets will allow the estimated $1.2 billion of duties to be collected in 2018 to be passed on to the US consumer via elevated lumber prices,” says Ed Sustar, a Moody’s Senior Vice President. “This is credit positive for our rated Canadian and US lumber producers, as high prices will outweigh the cost of the duty.”
Moody’s expects benchmark lumber prices, which have increased about 25% over the past year, to remain high due to rising demand fueled by a projected 6% increase in US housing starts and several hurricane repair and rebuilding efforts. This will be met with increased North American lumber production, with improved efficiency from recent capital investments.
Of the seven North American lumber producers and timberland owners Moody’s rates, US companies Potlatch Corporation and Georgia-Pacific LLC will experience the greatest upside from stronger prices, as neither company operates mills in Canada and thus will not be required to pay duties, notes Sustar. Canadian lumber producers such as West Fraser Timber, Resolute Forest Products and Rayonier A.M. Products (which recently acquired Tembec Inc.) will also benefit, as duties will only be levied on lumber that ends up being shipped to the US, which is about half of their production.
Softwood lumber duties may eventually be revoked if the Canadian government’s appeal of the duties is successful, and payments returned to Canadian producers if a new agreement is negotiated, says Moody’s.