Trade penalties on imported softwood framing lumber from Canada have gone into effect, raising the cost of Canadian wood by around 20% in a tight lumber market. “The U.S. has slapped final anti-dumping and countervailing duties on Canadian lumber, the latest step in another lengthy legal battle over softwood,” Bloomberg reported (see: “U.S. Pares Back Duties on Canadian Lumber in Softwood Spat,” by Josh Wingrove and Andrew Mayeda). “Canada has already launched challenges of the duties and reiterated its objection after Wednesday’s announcement. The Trudeau government argues the duties will leave the U.S. with a shortage of wood,” reported Reuters.
With the U.S. building industry in recovery from the punishing downturn of the last recession, demand for lumber is high, and so are prices—which means that Canadian producers may be able to withstand the pressure, according to a report from Woodworking Network (see: “Record-high lumber prices keep Canadian lumber industry strong, despite duties,” by Robert Dalheim). “VP of international trade and transportation for the Forest Products Association of Canada Joel Neuheimer said the higher price of wood and the insatiable demand from U.S. builders is helping keep the duties from pushing companies to lay off staff, cut production or even close down,” Woodworking Network reported. “The continuation of tight lumber markets will allow the estimated $1.2 billion of duties to be collected in 2018 to be passed on to the US consumer via elevated lumber prices,” says Ed Sustar, a senior VP with market analysis firm Moody’s. “This is credit positive for our rated Canadian and US lumber producers, as high prices will outweigh the cost of the duty.”
A strong housing market will likely keep the lumber market tight in the coming year. Housing starts were up 13% year over year in December, the Random Lengths lumber market newsletter reported. The Random Lengths benchmark Framing Lumber Composite Price hit $432 per 1,000 board feet in early January, up from $360 a year ago. (NAHB, the National Association of Homebuilders, tracks the Random Lengths index here: see “Framing Lumber Prices.”)
Price volatility matters as much as actual cost to builders, noted NAHB in a blog post (see: “NAHB Seeks Solutions as Lumber Prices Rise”). From the post: “Normally, our pricing lags a month or two behind these wholesale prices,” said Jonathan Sukonik, who builds homes in suburban Philadelphia. The lumber budget for a typical Sukonik Building Companies home is about $18,000. “If it jumps 10% or 20%, you can’t pass on the cost. You have to absorb it – and when lumber gets out of hand, it makes it more difficult to cover your costs.”
Builders may be able to buffer themselves against the jumpy lumber prices, NAHB observed. “The NAHB Construction Liability, Risk Management and Building Materials Committee sent Strauss a sample cost escalation clause contract addendum,” the blog post noted. “It’s too late for this contract, Strauss said, but on Friday morning he sent a copy to his fellow Ohio HBA members so they can keep it in their back pockets.”
