Analysis: The impact of duties on Canadian lumber exports to the US

With the expiry of the U.S.-Canada Softwood Lumber Agreement, the impact of probable duties on Canadian lumber exports to the U.S. will be a game-changer for different producing areas, according to research firm WOOD MARKETS. Punitive duties will raise lumber prices 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.

Another possibility is 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 rumoured 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.

“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,” said Russ Taylor, president of WOOD MARKETS. “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.”

China could become a battleground for market share, but at lower prices. As the U.S. can only produce about 65-70% of its own lumber demand, and with Canada’s market share in the U.S. dropping further, the way is paved for more imported lumber from Europe, Russia and other countries – and at higher prices.