10.13.16

The Missoulian: Softwood deal collapse could drive up U.S. lumber prices

Lumber producers in Montana don’t expect big changes after midnight Wednesday, when the U.S.-Canadian Softwood Lumber Agreement expires without a replacement.

But that doesn’t mean little ripples won’t turn into waves later on as loggers on both sides of the border try to meet American housing market demand for 2x4s. A weak Canadian dollar, increased pace of construction, shifting Asian export demands and a U.S. presidential campaign targeting international trade deals all stir a pot previously covered by the softwood treaty.

“If there’s less lumber coming from Canada, that’s good news for the American sawmills,” said Hakan Ekstrom, president of Wood Resources International, a Seattle-based timber market consulting firm. “But that also means with less competition, lumber prices go higher, which is a negative to the consumer going to Home Depot to buy lumber. We expect lumber demand will continue to go up as we see more housing starts in the next three to four years.”

To get a taste of the current complexity of international politics, look at a stack of 2x4s. Seven of every 10 boards was cut and planed in the United States. Virtually all of the remaining three boards came from Canada.

That number might be higher, except that Canadians have been shipping a lot of lumber to China in the past decade. However, those ships have grown fewer in the past two years. Part of that stems from the cooling of the Chinese construction boom, which many consider an unstable bubble economy.

But the Chinese also aren’t buying as much Canadian wood because they can get it even cheaper from next-door Russia. Loggers in the Russian forests can truck their boards to China. And they get paid in Russian rubles, which were worth about 35 U.S. cents in 2012 but now bring about 16 cents apiece since Russia’s military interference with Ukraine triggered international financial sanctions.

Meanwhile, the U.S. housing construction market has recovered from the standstill of the Great Recession. But the 2x4s supporting that market boost haven’t all come from the United States, according to Todd Morgan at the University of Montana Bureau of Business and Economic Research.

“U.S. lumber production hasn’t gone up the way Canadian has,” Morgan said. “U.S. production only went up 2 percent while Canadian production went up 25 percent now that the agreement isn’t there to slow them down. Plus, the U.S. dollar is stronger than the Canadian dollar. Both those things make a difference in giving the Canadians a trade advantage.”

The 10-year Softwood Lumber Agreement expired on Oct. 12, 2015, but had a year’s “stand-still” period while the two nations renegotiated. U.S. timber interests claim Canadian firms take advantage of government subsidies to develop public timber lands and dump their finished lumber on the American market at unfairly low prices. Canadians claim Americans place expensive duty fees on imported lumber in violation of free-trade agreements – cases they’ve generally won in international tribunals.

President Barack Obama and Canadian Prime Minister Justin Trudeau met on June 29, and produced a joint statement calling for Canada to restrict shipments to levels “at or below” an agreed-upon quota of the market. But their joint statement noted “significant differences remain regarding the parameters of the key features.”

That may reflect disagreements within the Canadian parties, according to Zoltan van Heyningen, executive director of the U.S. Lumber Coalition.

“Our government has been working very hard to shape the framework of such an approach that addresses all Canadian concerns,” van Heyningen said Wednesday. “Canada on the other hand, despite commitment of their leader, has continued to insist on a framework that would allow West Coast producers to ship beyond a certain market-share level.”

Van Heyningen said that could reflect British Columbia’s disproportionate supplies of raw logs, which might allow it to absorb export duties more economically than other Canadian lumber producers. Meanwhile, in the stand-still year Canada has increased its exports from 28 percent of the U.S. market to around 33 percent.

“In a commodities market, that’s huge,” van Heyningen said. “That is why you’re seeing some difficult times for U.S. producers. To be blunt about it, it comes down to jobs. Do you allow the Canadian system of subsidizing their industry to eliminate U.S. jobs?”

North of the border, Canadian chief negotiator Martin Moen told Canadian media “no deal is better than a bad deal,” although he held out hope that an agreement might be reached. But with trade agreements like the North American Free Trade Act and the Trans-Pacific Partnership being negative campaign issues in the U.S. presidential race, pushing for a new lumber deal couldn’t have worse timing.

In Montana, local mill owners said they didn’t expect much impact, good or bad, after the agreement disappears on Wednesday night. However, they are closely watching the congressional delegation of Sens. Jon Tester and Steve Daines and Rep. Ryan Zinke, who are all involved in the negotiations.

“The Montana industry appreciates the efforts of the Montana Congressional delegation and U.S. trade negotiators in working for a new softwood lumber agreement,” Montana Wood Products Association President Paul McKenzie of F.W. Stoltze Land and Lumber said in an email. “Canadian lumber imports continue to seriously harm Montana lumber companies, workers, and their communities. This is why we need an agreement that is effective and sustainable. Alternatively, we need our government to fully enforce the U.S. trade laws against unfair Canadian trade practices.”

That enforcement could come soon. Van Heyningen said the industry intended to demand import duties on Canadian softwood “at the earliest possible period that would result in the most effective trade cases.”

“But we’re also working with the Montana delegation and negotiators trying to get a new agreement,” van Heyningen said. “Even if we do end up filing, the governments will continue to negotiate.”


By:  Rob Chaney
Source: The Missoulian