Tariff anxiety continues and is now refocused on the latest “deadline”. Despite all the tumult and spilt ink, markets are generally ascribing a low probability to duties actually being introduced. While tariff speculation is dominating conversations between buyers and sellers… we have heard no reports of meaningful pre-buying or “insurance” purchases. This is unsurprising given various supply-chain constraints, the high cost of working capital, and the difficultly of developing new relationships in short order. Buyers want protection against tariffs, but that isn’t going to happen because the US can’t self-supply most forest products. Buyers will pay up. 

On January 15 we published a research note outlining U.S. sourcing of forest product commodities, from solid wood through packaging. For some commodities, imports (and imports from Canada specifically) are a small part of US domestic consumption, so would be easier to replace. For others (including lumber, OSB, newsprint and uncoated mechanicals), replacing imports would be slow and expensive, allowing suppliers to pass on all—or almost all—of the tariff amount to consumers. In some cases, producers straddle the border and may be able to slow/idle Canadian operations while running their US assets at full tilt. Some US mills are already seeing their order books fill up, with buyers unwilling to pivot to Canadian options until the tariff situation is clearer. 

However, if some producers expect the tariff regime to be a mere negotiating ploy, with the possibility they could be reduced/removed over the next year, drastic actions (i.e., outright closures in Canada and/or new mills in the US) would not be taken. Everyone is trying to navigate through these times, with no easy answers other than “be prepared.”  Devoting time and energy to this topic is in itself a tax on the industry. Certainty and stability are always better for trading partners, but keeping said partners “on their toes” and unbalanced seems to be the name of the game as the current US administration renegotiates relationships with trade partners. 

January was a mildly positive month for lumber prices despite rampant uncertainty. However, prices for both key grades declined last week: S-P-F 2x4s are trading at $445, up from $438 at the beginning of the year, while SYP 2x4s are at $374, up from $369 at the beginning of January. Demand remains anemic, hampered by wintry weather conditions and elevated U.S. mortgage rates, but the threat of tariffs appears to be supporting prices at current levels. Without tariffs, price risk would be downside weighted. However, if a tariff is introduced, we expect prices to shoot higher as the markets adjust to this major disruption.

OSB prices have taken a beating to start the new year, with declines of $55–110 reported across the various regions over the past three weeks. North Central 7/16″” is trading at $310 today, down from $420 at the turn of the year, and 7/16″” is between $265 and $300 elsewhere. Despite the U.S. being more reliant on Canadian OSB than on lumber, thus far the tariff threats haven’t had any impact on OSB markets. In plywood, pricing trends have been mixed but moves have been more muted than in OSB. Southern plywood prices are grinding higher, while western prices are moving in the other direction.

Pulp markets are exiting the down-cycle, driven by supply-side forces. Prices for both main grades in the Chinese market have nudged up in January, and we expect further gains in the next few months. Fluff price increases have been announced for January and February, and have broad producer support. Hardwood producers have announced aggressive increases through February, but implementation is lagging amid falling spot prices (for both grades) in Europe and North America in January. The hardwood discount to NBSK is very wide in China at ~$220, and is expected to remain historically large. Despite the short-term tailwinds, longer-term demand drivers remain unclear, especially because China has been building integrated pulp capacity.”