Sales in August were flat across the board, but prices rose despite that, thanks to the latest adjustments to the Softwood Lumber Agreement (SLA). The Softwood Lumber Agreement (which consists of two duties) is separate and away from the Trump Administration’s “Reciprocal Tariffs” but has the net effect of raising costs. Metered out by the United States Department of Commerce (USDOC), it consists of the Anti-Dumping Duty (ADD) (which is for selling products below market value) and the Countervailing Duty (CVD) (for receiving unfair government subsidies). In Canada, lumber mills harvest timber from provincial, government-owned ‘crown” land, where stumpage fees are set by the government. In the United States, American lumber mills harvest timber from privately owned land that is subject to market pricing, through competitive auctions. The heart of the matter is that the USDOC sees the Canadian stumpage fees amounting to a subsidy for Canadian mills. The duties are a punitive action against Canadian mills for unfairly selling provincial lumber against American mills (which are at a disadvantage to the cheaper Canadian prices) but are also intended to escalate Canadian lumber prices so that American mills can operate more profitably. In a nutshell, all boats float on a rising tide, so the SLA is a dam-release, if you will. The ADD was adjusted from 7.66% to 20.56% on August 1st, and the CVD was adjusted from 6.74% to 14.63% on August 8th, a collective 20.79% added to the previously standing 14.40%, for a net duty on Canadian lumber of 35.19%. However, nothing trumps Supply and Demand, which currently deserves more attention. When mills returned from their summer shutdowns in August (right after the SLA price adjustments) the majority had little to no order files to return to. With news of the SLA adjustments occurring, in June and July most dealers bought ahead of the increase and continue to be working off those supplies, as activity still appears to be for immediate needs. Pricing did increase initially, but not to the extent that was anticipated as a soft demand counteracted it. As of print, there is still plenty of wood at the dealer and local distributor levels and prices are soft. At some point, replenishing will occur but that is the big unknown for right now. For September, we anticipate pricing to be flat but gradually increase as the month ends.
According to the Thomas Register (now known as “Thomas.net”, a product sourcing and supplier platform), “Duties are indirect taxes imposed on the consumer (Canadian lumber mills as “consumer” of Canadian provincial timber). Governments charge duties on specific goods and services that are manufactured and sold within their country, as well as on imported goods. The purpose of a duty is to protect the country’s economy by regulating the flow of goods into and out of the country” whereas “Tariffs are direct taxes imposed by a government on goods and services imported from or exported to a different country. The reason for imposing tariffs on imported goods is to drive up the cost of foreign-produced goods, thus protecting domestic manufacturers.” As you can see, there are subtle differences between both. Indirect taxes (duty) refer to taxes that are passed down to the end consumer (think sales tax), while direct taxes (tariff) are taxes that a person or organization directly bears (think Federal income tax). Political leverage aside, the intent of both is to drive up prices and change purchasing behaviors, to better protect our economy by supporting our domestic manufacturers. In the long term, they will undoubtedly be effective to a degree but, for now, we see the hurt put upon the American consumer by way of higher prices. As mentioned earlier, alternatives are sought when prices escalate and we do see that happening, with more sales going to domestic mills, the expansion of users of U.S. grown Southern Yellow Pine framing and an expanding interest in engineered wood, all of which are helping the U.S. economy. Nonetheless, the factor of home affordability remains front and center when it comes to sales there still seems to be little to no relief on that front, especially when we see duties and tariffs escalate pricing on more than just lumber (which, incidentally, accounts for about 15% of the cost of building a home). Right, wrong, or indifferent, there’s one certainty and that is that all things are cyclical, and the housing market is no exception. Supply and Demand rule supreme and, although whatever plays out in the “Big Picture” is beyond our control, we do all we can to provide you with stable pricing and a steady supply of high-quality materials. We have positioned ourselves very well against this latest lumber cost disruption and work diligently to do the same across the broad spectrum of products that we sell.
Many times, news like this latest Softwood Lumber Agreement duty adjustments can “startle the herd”, sending off a frenzy of buying in the industry that only escalates matters. Inevitably, the dust soon settles, and a new comfort level is achieved. Disruptions will come and go, but our commitment here at Shepley to quality, service and price never wavers. We are the Partner to the Pro’s, catering to the Cape Cod Contractor and in it for the long-haul, fully committed to providing stability to our customers. Thank you for your business.