Extraordinary circumstances are surrounding this year’s market – protect yourself!

There is a lot of uncertainty in the market this spring

With both an expected agreement on a new Softwood Lumber Agreement (SLA) and the settlement of a Countervailing Duty (CVD) for presumably subsidized Canadian lumber sold into the United States.  The United States and Canada operated all last year without an agreement.  Most parties seemed content with last year’s business with one exception – small U.S. lumber producers.  With no SLA, the high volumes of Canadian lumber that shipped to the United States kept pricing low and the returns that went back to Canada were aided by an almost 30% exchange rate advantage keeping Canadian mills happy.

This isn’t a new argument between the United States and Canada, the argument stems from a fundamental disagreement on land management.  U.S. mills own or lease vast tracks of timberlands and must therefore manage their own sustainability while Canadian mills pay a stumpage charge to the Canadian government to forest the Canadian government’s land which the Canadian government manages.  Canadian mills therefore presumably do not bear the burden of maintaining land on their balance sheet.

Decking Products

To dealers like us the issue seems ludicrous

Many of the larger mills operate on both sides of the border now anyway and pricing appears directly correlated between northern and southern offerings.  We just simply want to provide our customers with the products they want, when they want them, and at a price they are willing to pay for them.  Unfortunately, we are not the only parties involved and some feel the competition is unfair.

That being said, the United States Softwood Lumber Coalition filed an anti-dumping lawsuit after a one year “cooling down” period when the SLA expired.  The suit named the four biggest Canadian lumber producers (West Fraser, Canfor, Resolute, and Tolko).  A panel agreed there were damages and now anyone interested in North American lumber is eagerly awaiting the determination of what those damages are.  Between the SLA and the CVD, Canadian mills are bracing for 30% increase but the actual determination may be quite different than that.  Unfortunately I think we are along for the ride this spring until it all gets sorted out.  There are four dates to keep in mind that will influence lumber pricing this year:

What does this mean for both of us?

Look for pricing to rise between now and the determination dates.  Pricing bumped up pretty good this week and if you haven’t raised your selling prices now is the time to do it.  Again, the market is bracing for 30% and the determination dates may bring more pain or relief.  Our goal is to always be a resource that adds value to your business and we pledge to keep you competitive in the market but pricing is going up in the short term.  Please protect yourselves with market correction clauses and expiration dates on your quotes.  The dynamics in this market are much bigger than both of us and neither of us can control them.  All is not lost though, it is very likely the market will come back down just as fast as it went up after the determination dates but don’t leave it in someone else’s hands!

 

 

 

John Colley, MBA
Purchasing Manager
Zeeland Lumber & Supply