Amer­i­can hous­ing boom spurs Cana­dian lum­ber surge

But U.S. sen­a­tors want new soft­wood deal to pro­tect do­mes­tic jobs

The Hamilton Spectator - - BUSINESS - JEN SKERRITT

With Amer­i­cans buy­ing more new homes than at any time since the re­ces­sion, the cost of the wood used to build them is get­ting a lot more ex­pen­sive.

Lum­ber prices are off to their big­gest rally in more than a decade, touch­ing a 19-month high last week as de­mand in­creased from builders. But al­most a third of all wood used in U.S. homes comes from the world’s top ex­porter, Canada, where surg­ing ship­ments have com­pounded a trade dis­pute and in­creased the chances of im­port tar­iffs that may top 30 per cent. That spells trou­ble for pro­duc­ers in­clud­ing West Fraser Tim­ber Co. and Can­for Corp.

While the two coun­tries have un­til Oc­to­ber to iron out a new soft­wood-lum­ber trade agree­ment to re­place one that ex­pired last year, im­ports are flood­ing into the U.S., in­ten­si­fy­ing op­po­si­tion from Amer­i­can pro­duc­ers who say their northern neigh­bours get un­fair sub­si­dies.

Cana­dian ex­ports ac­counted for most of the in­creased de­mand from U.S. builders this year through April, Bloomberg In­tel­li­gence es­ti­mates.

“Canada is ship­ping so ag­gres­sively into the U.S., you’re go­ing to stoke the fears there,” said Kevin Ma­son, man­ag­ing direc­tor of ERA For­est Prod­ucts Re­search, a Van­cou­ver-based re­search com­pany.

With de­mand for lum­ber slow­ing in Asia, Canada stepped up sales to its south­ern neigh­bour, by far its big­gest cus­tomer. Ex­ports surged to 7.45 bil­lion board feet of lum­ber in the first half of the year, up 20 per cent from the same pe­riod a year ear­lier, trade data shows.

Growth has been fu­elled by a re­bound in the U.S. hous­ing mar­ket.

Pur­chases of new sin­gle-fam­ily homes rose in June to the high­est level in more than eight years, to a 592,000 an­nu­al­ized rate, U.S. Com­merce Depart­ment data show. Construction rose 4.8 per cent to a 1.19 mil­lion an­nu­al­ized rate, the most since Fe­bru­ary.

A typ­i­cal home uses about 16,000 board feet of lum­ber and more than 14,000 board feet of re­lated wood prod­ucts, in­clud­ing ply­wood.

Amer­i­can pro­duc­ers aren’t get­ting much of the new busi­ness.

Of the 1.9 bil­lion board feet of in­creased de­mand this year through April, 1.6 bil­lion came from Canada, Joshua Zaret, a Bloomberg In­tel­li­gence an­a­lyst, said in a re­port. The dis­crep­ancy prob­a­bly will har­den the U.S. po­si­tion in ne­go­ti­a­tions, he said.

In a let­ter last week to U.S. Trade Rep­re­sen­ta­tive Michael Fro­man, 25 sen­a­tors said any new agree­ment with Canada on lum­ber must in­clude strong pro­tec­tions for do­mes­tic jobs, not­ing the ad­verse im­pact of sub­si­dized sup­plies over decades.

David MacNaughton, Canada’s am­bas­sador to the U.S., said the pact must be flex­i­ble and that “in­flated rhetoric” will com­pli­cate ef­forts to find a so­lu­tion.

Dis­putes by the coun­tries over lum­ber have es­ca­lated be­fore. From 2001 to 2006, the U.S. im­posed im­port du­ties of 27 per cent to 29 per cent the last time the two coun­tries failed to agree on trade terms, ac­cord­ing to ERA For­est Prod­ucts Re­search.

Since the previous agree­ment ex­pired in Oc­to­ber, Canada was per­mit­ted to ship lum­ber tar­iff-free for a year to al­low time for talks on a new deal. “There’s a chance a new soft­wood lum­ber pact won’t be reached be­fore the one-year mora­to­rium on fil­ing trade cases ends in Oc­to­ber,” Zaret said.

Should tar­iffs be im­posed that are sim­i­lar to those of a decade ago, that would in­crease the cost of im­ported Cana­dian lum­ber and limit sales from com­pa­nies in­clud­ing Van­cou­ver-based West Fraser and Can­for, which may see earn­ings drop by five per cent next year, ERA’s Ma­son es­ti­mates.

West Fraser said last week it’s pre­pared for a break­down in U.S. talks. It sup­ports the Cana­dian gov­ern­ment’s at­tempt to come up with a rea­son­able set­tle­ment, CEO Ted Seraphim said on an earn­ings call.

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