U.S. Export Duties on Canadian Lumber to Cause Market Chaos and Soaring Prices
New WOOD MARKETS five-year forecast calls for volatility in North America while global regions face whiplash as trade flows
are disrupted from export duties
Vancouver, BC, December 8, 2016
In WOOD MARKETS’ new five-year Softwood Lumber Chapter forecast, U.S. duties on Canadian lumber exports to the U.S. are expected to cause short-term chaos after they are announced in early Q2/2017. This new development alone completely changes all previous outlooks as a new approach to “managed trade” by the U.S. kicks off the 5th U.S.-Canada lumber war. The American position is to try and marginalize its largest competitor (Canada) by using elements of U.S. trade law that will allow the implementation of preliminary and prohibitive export duties.
These details and further analysis of commodity lumber and panels was released today in the report, WOOD MARKETS 2017 – The Solid Wood Products Outlook: 2017 to 2021 by International WOOD MARKETS Group, Vancouver BC.
The expected implementation of countervailing (CVD) and anti-dumping (ADD) duties on Canadian lumber exports to the U.S. will cause lumber prices to surge in 2017 and go even higher at various points over the next five years. The WOOD MARKETS 2017 Outlook has adopted a 25% combined export tax, but the final combined duty determination starting in Q2/2017 could be even higher.
In assessing the impact of export duties on Canadian exports to the U.S., WOOD MARKETS has run the report’s base case model at 25%, as well as three other duty scenarios: no duty (0%), 15% and 35%. These different model scenarios involve a full analysis regarding U.S. and Canadian production, imports, exports and consumption. “However,” indicated Russ Taylor, President, “the major gap in the WOOD MARKETS models is trying to find enough lumber supplies to meet projected U.S. demand around 2020, even at a 0% duty. When duties of 25% and 35% are considered, the question looms as to where the U.S. will get all of its lumber and at what price.”
The impact of U.S. export duties on Canadian lumber production and exports has
been developed from building a cost curve of Canadian producing regions from WOOD MARKETS new benchmarking report, Biannual Global Timber/Sawmill/Lumber Regional Cost & Revenue Profiles. From this, WOOD MARKETS has overlaid a cross-Canada timber supply availability map with delivered log and sawmill costs to determine which producing regions (and mills) are most impacted by 25% export duties. The projected results show that two regions in Canada will be impacted the most and mill curtailments and closures will occur, but only in the short term.
While the initial shock and impact of export duty rates of 25% will cause some initial chaos and mill curtailments in Canada, quickly escalating U.S. lumber prices will bring much of the curtailed production back online, but depending on the amount of the final duties. This trend becomes even more critical starting about 2019 when we forecast the first “supply gap”, as we don’t see enough other lumber supply being readily available to meet overall projected U.S. demand (at a conservative housing starts forecast) without bringing back more Canadian lumber imports. “This means that Canadian lumber will need high prices to increase exports to the U.S.,” commented Russ Taylor, “and starting in 2020, record-level lumber prices are forecast in the U.S. market.”
Some of the regional trends are summarized here:
In all four export duty scenarios (0% to 35%), U.S. production and European exports to the U.S. rise and Canadian production and exports fall. This results in the U.S. (and European) producers gaining in terms of their market share of U.S. consumption at the expense of Canada, and more as the duty rate rises.
Given the positive outlook for the U.S. housing market over the next five years coupled with U.S. exports duties starting in Q2/2017, a surge in U.S. lumber prices is forecast – smaller in 2017 and then a larger price gain in 2018. Starting later in 2019, we expect a growing shortage of incremental lumber that will require Canadian lumber exports to the U.S. to increase slowly and steadily thereafter, mainly from Eastern Canada. By 2020, it is expected that North American logging and sawmilling capacity will start to lag with overall U.S. lumber demand, and coupled with steady increases in demand and punitive export duties on Canadian exporters – this should allow lumber prices to soar starting in 2020 and beyond. Did somebody say, “super-cycle?”
Full details of the five-year outlook for the U.S. and Canada’s lumber and panels consumption, imports, exports, production and price trends are available in WOOD MARKETS 2017 – The Solid Wood Products Outlook – 2017 to 2021.