Export duties send softwood prices in U. S. soaring
Softwood lumber prices OT TAWA in the U. S. soared to near- record highs Wednesday, as Canadian producers passed higher export duties charged by the U. S. government straight on to American consumers.
KD Western S- P- F, a common benchmark for softwood lumber exported into the U. S., was trading above US$ 494, near its all- time high, which appears to neutralize any potential impact of increased duties on Canadian exporters.
Analysts say tightening markets are a key difference from the last time Canada and the U. S. were in a prolonged dispute over softwood lumber trade, which endured from 2001 to 2006.
“That’s what’s really different this time, is you have fundamentally very tight building materials markets — both for lumber and structural panels,” said Daryl Swetlishoff, the head of equity research at Raymond James Ltd. in Vancouver.
“As a result, you’ve seen Canadian lumber producers passing off 100 per cent of these duties that they’ve faced so far in 2017 right onto the backs of the U. S. consumer.”
In early November, the U. S. Commerce Department slapped a 20- per- cent duty on softwood lumber imports from Canada, after determining last spring the country was unfairly subsidizing the industry.
On Tuesday, a lawyer representing Canada hand- delivered a letter to the American NAFTA secretariat in Washington calling for a review of the U. S. stance on softwood lumber duties, according to The Canadian Press.
The challenge falls under Section 19 of NAFTA, a key mechanism used by Canadian companies to appeal countervailing and antidumping duties.
Chapter 19 establishes a panel of five arbiters, agreed upon by both countries, who will decide if the duties meet U. S. law. Without that mechanism, Canada would have to use the U. S. court system to make such a challenge.
Tariffs on Canadian lumber exports into the U. S. are not new. Between 2006 and 2015, Canadian producers paid an average of about 11- per- cent duties, compared to around 20 per cent today.
“This is a normal feature in this industry,” Swetlishoff said.
Canada and the U. S. have battled over softwood for decades and the disputes have been before both NAFTA and the World Trade Organization multiple times. The Canadian softwood lumber industry has used the courts to appeal trade duties five times in 35 years.
Softwood lumber disputes specifically are not being addressed in current NAFTA negotiations. The fifth round of NAFTA discussions officially begin Friday in Mexico City.
In a written statement, Foreign Affairs Minister Chrystia Freeland said Canada will “forcefully defend Canada’s softwood lumber industry.”
“The U. S. Department of Commerce’s decision on punitive countervailing and anti- dumping duties against Canada’s softwood lumber producers is unfair, unwarranted, and deeply troubling,” she said.
Higher softwood lumber prices are a result of crimped supplies in Canada due to wildfires and the spread of the mountain pine beetle in the West. Meanwhile, U. S. demand has grown moderately.