The U.S. and Canada haven’t been exactly buddy-buddy in recent years when it comes the lumber market. Certainly the economic downturn hasn’t helped matters, since there has been less market share to go around. But there could be some brighter days ahead.
Both countries are likely to extend their softwood lumber trade agreement from 2013 until 2015, according to U.S. and Canadian media. Of course, this doesn’t mean that either country is happy. The U.S., rightfully so, has repeatedly accused the Canada government of violating the agreement by providing new subsidies to its timber, while Canada would love to be able to sell to U.S. buyers without any limitations.
(Zoltan van Heyningen, spokesman for the U.S. Lumber Coalition) said the U.S. industry wants to keep the status quo for another couple of years in the hopes that by 2015 mills on both sides of the border will be on sounder financial footing.
That is also largely the view of Canada’s lumber sector, said Avrim Lazar, president of the Forest Products Association of Canada.
“Neither side really likes the agreement, but both sides accept that it’s a lot better than not having it,” Lazar said.
The tension stems from the fact that Canada can heavily subsidize its timber because it’s grown on government land, which puts pressure on privately owned American mills.
The vast majority of Canadian timber is grown on government-owned lands, which U.S. lumber companies say gives Canada an unfair advantage. In 2002, the trade war reached a heated peak when the United States slapped a 27 percent duty fee on imported Canadian lumber, which led to the two sides coming to the 2006 agreement.
Both countries’ hopes for a more prosperous future are probably true, according to industry forecasters. According to Brookfield Timberlands, which owns 2.5 million acres in the U.S., Canada and Brazil, as well as the International Wood Markets Group, the timber industry will see increased demand and prices (and tight supply) as early as 2014.
(Reid Carter, managing partner of Brookfield Timberlands) said a number of factors, from the mountain pine beetle that has killed 15 to 20 per cent of the timber supply for construction lumber, to growing demand from China and new markets like India, will lead to what some analysts are referring to as a “super-cycle” for forest products. The sector has been bouncing along the bottom of a downturn for the last five years.
“It’s going to result in a pretty big supply shock,” he said. “That economic opportunity is really going to become evident in the 2014-2018 period. It’s not evident today because U.S. housing demand is so low, overall North American lumber demand is so low, and salvage activity is so high that it hasn’t had this price impact yet.
“But as the U.S. housing market recovers and as Chinese, and likely Indian, lumber demand and log export demand increases, we believe it will result in meaningfully higher prices for both lumber and timber.
“We think it will create a meaningful tightness on the softwood structural sawlog market on both sides of the Pacific.”