At the Global Wood Summit last week, Zoltan van Heyningen, Executive Director of the U.S. Lumber Coalition, shared the U.S. perspective on the softwood lumber file. Zoltan emphasized that duties are a legal process stemming from administration of U.S. trade law and are distinct from tariffs, which are policy driven trade action. As such, the imposition of duties on Canadian lumber imports is not a policy debate, it is a legal process. Functionally a “Trump tariff” could be in addition to duties!
From the U.S. perspective, the softwood lumber trade case has been extremely effective. According to the Coalition, since the case was filed in 2016: Canadian mills have accounted for 74% of curtailments and 60% of mill closures by capacity; U.S. mills have accounted for 79% of mill expansions, with Canadian mills accounting for just 14%; U.S. mills accounted for 98% of new capacity, while Canadian mills added virtually none; Canadian mills have lost 5.3Bbf of capacity while U.S. mills have gained 8Bbf; U.S. operating rates are now consistently higher than in Canada, a deviation from historical norms; and finally, import penetration is at its lowest level since the 1970s. In Washington, the softwood lumber case is seen as a poster child demonstrating the positive impact of trade law enforcement on domestic industry.
Our Take: Mr. van Heyningen was very clear regarding the disposition of duties that have been collected—the majority won’t be treated any differently than other duties collected by U.S. Customs and would be liquidated into the Treasury. Trade deals, such as the prior Softwood Lumber Agreement, are very rare, but the door remains open for a negotiated settlement. However, there has to be “something in it” for the U.S. Coalition (and its members). We suspect that 10 cents on the dollar will not suffice this time around as Canadians have a weaker hand this time if/when negotiations commence.
Notwithstanding the above, it has been an interesting month for North American lumber markets, with feeble Q3 earnings contrasted with the recent improvement in prices for virtually all lumber species and dimensions. Starting with recent positive market trends, SYP 2x4s were the standout performer last month, with prices soaring by $84 since the beginning of October to $432 today. S-P-F 2×4 prices also posted strong gains last month (+$43 to $428), albeit from a higher starting point versus SYP.
A barrage of storms in the U.S. South may have been the catalyst for the recent price run, but conversations with industry contacts suggest that lumber supply and demand had come back into balance before the storms hit (owing to prior sawmill capacity closures across several producing regions). The fact that prices have increased for seven consecutive weeks now supports this theory—with prior hurricanes, prices have typically gained for a couple of weeks before reversing course as supply chains normalized.
We do not foresee pricing remaining in this upward trend through year-end and into 2025, and a seasonal slowdown in demand after U.S. Thanksgiving should precipitate a pullback in pricing later this quarter. However, supply and demand are clearly better matched today than they have been at any point over the past couple of years. While the recent uptick in prices is certainly cause for optimism, as we look forward to a stronger year for North American lumber markets in 2025, Q3/24 lumber earnings have served as a stark reminder of just how challenging this year has been.