May22

June 2017 – Lumber Update

By Paul Rogers,

On April 24th, the U. S. Department of Commerce announced the long-awaited countervailing duty (CVD) to be levied against Canadian lumber producers. The hype beforehand had it estimated to be in excess of 30%, so there was a little relief when the final announcement was set at 19.88%. However, the announcement set the stage for action as the CVD was responded to in a manner of different ways by producers, which created another round of anxiety: some went off the market, opting to find customers outside of the U. S. in order to avoid the duty altogether, while others simply increased their already overinflated numbers in proportion to the duty. Yet others were more reasonable, acknowledging that they had built in enough to suffice the duty and chose not to react. The market, as a whole, struggled to find what was required to get back to buying and selling as the virtual stand-off didn’t break as quickly as anticipated: buyers refused to pay for what was known to be overpriced material, and mills were not going to give up a cent without a fight. It turned out to be more of a buyer’s market as poor weather put a crimp on sales. Supply, already bolstered in advance of the CVD at the retail level, was thin at the mill level as they went in to the month of May with little for order files. As some replenishing begun to occur, the market finally picked back up, but very slowly, only for absolute need and with little material available for prompt shipment. The next major event is slated for June 23rd, in which the U. S. Department of Commerce will announce their penalty for anti-dumping (AD), and we’ll get the opportunity to relive the process once again. In the meantime, the market is in a state of flux, as both sides of the industry search for solid ground in terms of real demand and fair market price. For June, we anticipate the market to remain firm, but prone to swings as suppliers and buyers vacillate upon what course of action to take.

Although supply is a concern, the biggest anxiety surrounding the duties against Canada is the higher price we Americans will be paying for lumber. With the building trade finally picking up steam and the housing market well on its way to a full recovery, fears are such that price increases will slow sales. How is it that we benefit from these duties, when we are essentially paying for the penalties that we’ve imposed upon Canada? The answer is that it enables the American mills to operate more profitably. For many years, American mills weren’t able to compete at the same level as the Canadians, as they sold at levels that made it extremely difficult for our mills to make a profit. Imposing duties against the Canadians now puts the American mills on a level playing field, and positive repercussions were immediate: several American lumber mills have announced plans to hire and expand and are enjoying a surge in business. Nonetheless, concerns over paying a higher price for a home is at the forefront, as no one wants to see the recovering home building industry suffer any setbacks. The National Association of Home Builders (NAHB) has taken the position that the tariffs have a negative effect, noting that they will add 6.4% to the cost of the average American home lumber package ($1236.00). This is refuted by the U.S. Lumber Coalition (who petitioned for the duties), who states that 6.4% is highly inflated and calculates it closer to 2%. Perhaps they are both right, or it’s somewhere in the middle: leading up to the CVD announcement, the hype and anxiety certainly ramped up pricing beyond reasonable levels, levels that the mills want to keep in place. Once we are beyond the stages that lead up to imposing duties (and that subsequently also create volatility), the new market pricing could be closer to 2%. In all likelihood, it will be somewhere in the middle.  

In any event, it’s important for everyone in this industry to exercise some moderation and not become greedy, as it will surely slow our momentum down and do more harm than good. We often use the phrase “Pigs will be pigs, but hogs will get slaughtered”, meaning that it is never good business to take advantage of your customers, as you will be punished for it in the end. That’s our assurance to you, that we are not opportunists who will take advantage of you just because we can, but will play fair all the time and in every situation. We are in this for the long term and realize that we are advocates on your behalf, supporting our fellow Americans, rebuking unnecessary price increases and ensuring that you have the best chance to be competitive with the numbers that we provide.  As we navigate through the politics of this situation, please do not hesitate to reach out to your sales person for any help you may need with your project. We sincerely thank you for your business!

 

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