Trump's 'America First' Vow Turned Upside Down in Lumber Market
By-
Shares of Canadian producers outperform U.S. counterparts
-
Gains driven by surge in lumber prices from trade dispute
Donald Trump’s policy on trade since becoming U.S.
president has been all about putting “America First.” But in one corner
of the commodity world, his actions are having the opposite effect.
In
a move intended to protect the domestic lumber industry, the U.S. this
year slapped duties of as much as 31 percent on imports of timber from
Canada, which supplies more than a quarter of what American builders use
each year. Prices surged, increasing costs for American buyers -- and
boosting profit for Canadian producers.
Shares of Canadian softwood lumber producers Canfor Corp. and West Fraser Timber Co.
are outperforming their American peers with gains of more than 40
percent this year, placing them among the top performers on the BI
Global Paper and Wood Products Index. By contrast, shares of U.S. rival Weyerhaeuser Co. are up about 10 percent.
Lumber futures jumped 16 percent in 2017 as U.S. trade limits
and western wildfires spark concerns over limited supplies, just as
communities in Texas and Florida begin to rebuild after devastating
hurricanes in the past month. That means more gains ahead for Canfor and
West Fraser, which have more exposure to softwood-lumber prices than
their American peers, including Weyerhaeuser and Potlatch Corp., according to Christoph Butz, a senior investment manager of timber funds at Pictet Asset Management in Geneva.
“There is no way lumber prices can nosedive,” said Butz, whose firm is one of the largest shareholders
of Vancouver-based Canfor. Canadian producers “have a much stronger
direct exposure, since that is really the bulk of the business,” he
said.
Tensions escalated in April when the Trump administration imposed preliminary countervailing duties of as much as 24 percent on Canadian imports. Additional duties of as much as 7.7 percent followed in June. But most of those increases have been passed along to consumers.
“This is a strong market,” said Joshua Zaret, an analyst with Bloomberg Intelligence. “If it were a weak market, they wouldn’t be able to push through prices, and they’d have to eat the tariffs.”
Why the U.S. and Canada Are Fighting About Lumber: QuickTake Q&A
The U.S. tariffs sent lumber prices surging at a time when demand from home builders was already strong, Butz said. While the lion’s share of the Canadian producers’ business is directly linked to lumber, the American companies have more investments in private U.S. timberlands and mills in the nation’s south, where log prices haven’t increased as much, he said.
“Prices have gone up, and the U.S. market has absorbed the prices,” said Philippe Couillard, the premier of Quebec, Canada’s second-largest lumber-exporting province. In Canada, “not a single worker has been laid off, not a single plant has been closed,” Couillard said in an Sept. 18 interview. “So the people suffering from this battle are the U.S. consumer and the people wanting to build their homes or renovate their homes.”
On the Chicago Mercantile Exchange, lumber futures are up 25 percent over the past 12 months to $381.80 per 1,000 board feet. Prices have room to keep climbing, said Kevin Mason, managing director of Vancouver-based ERA Forest Products Research. Lumber could reach $400 over the next month if mills start running low on logs after wildfires in some key forest areas, Mason said.
Wildfires in western parts of Canada, along with some in the U.S., are threatening tree supplies and have prompted limitations on log harvesting, Mason said. An infestation of the mountain pine beetle also has eaten away at timber in the Canadian province of British Columbia, the world’s biggest exporter of softwood lumber.
Output threats can become a bit of a double-edged sword for Canada’s producers. On the one hand, they’re likely to keep lumber prices high. But wildfires and pests also could hurt sales and impede the ability of companies to deliver large volumes. That could mean a boost for other global suppliers.
“All that lumber needs to come from somewhere,” Butz of Pictet Funds said.
Shares of Canadian softwood lumber producers Canfor Corp. and West Fraser Timber Co.
are outperforming their American peers with gains of more than 40
percent this year, placing them among the top performers on the BI
Global Paper and Wood Products Index. By contrast, shares of U.S. rival Weyerhaeuser Co. are up about 10 percent.Renewing Dispute
Disputes between the countries over softwood lumber have caused intermittent friction for years. Canada’s share of the U.S. lumber market averaged 28 percent under a previous trade agreement, Joshua Zaret, a Bloomberg Intelligence analyst, said in a March report, citing data from the Congressional Research Service.Tensions escalated in April when the Trump administration imposed preliminary countervailing duties of as much as 24 percent on Canadian imports. Additional duties of as much as 7.7 percent followed in June. But most of those increases have been passed along to consumers.
“This is a strong market,” said Joshua Zaret, an analyst with Bloomberg Intelligence. “If it were a weak market, they wouldn’t be able to push through prices, and they’d have to eat the tariffs.”
Why the U.S. and Canada Are Fighting About Lumber: QuickTake Q&A
The U.S. tariffs sent lumber prices surging at a time when demand from home builders was already strong, Butz said. While the lion’s share of the Canadian producers’ business is directly linked to lumber, the American companies have more investments in private U.S. timberlands and mills in the nation’s south, where log prices haven’t increased as much, he said.
“Prices have gone up, and the U.S. market has absorbed the prices,” said Philippe Couillard, the premier of Quebec, Canada’s second-largest lumber-exporting province. In Canada, “not a single worker has been laid off, not a single plant has been closed,” Couillard said in an Sept. 18 interview. “So the people suffering from this battle are the U.S. consumer and the people wanting to build their homes or renovate their homes.”
Rising Costs
The trade dispute pushed up material costs for house builders in the U.S. by 20 percent, Jerry Howard, chief executive officer of the National Association of Home Builders, said last month.On the Chicago Mercantile Exchange, lumber futures are up 25 percent over the past 12 months to $381.80 per 1,000 board feet. Prices have room to keep climbing, said Kevin Mason, managing director of Vancouver-based ERA Forest Products Research. Lumber could reach $400 over the next month if mills start running low on logs after wildfires in some key forest areas, Mason said.
Wildfires in western parts of Canada, along with some in the U.S., are threatening tree supplies and have prompted limitations on log harvesting, Mason said. An infestation of the mountain pine beetle also has eaten away at timber in the Canadian province of British Columbia, the world’s biggest exporter of softwood lumber.
Output threats can become a bit of a double-edged sword for Canada’s producers. On the one hand, they’re likely to keep lumber prices high. But wildfires and pests also could hurt sales and impede the ability of companies to deliver large volumes. That could mean a boost for other global suppliers.
“All that lumber needs to come from somewhere,” Butz of Pictet Funds said.
Source: https://www.bloomberg.com/news/articles/2017-09-19/trump-s-america-first-vow-turned-upside-down-in-lumber-market?cmpid=socialflow-twitter-business&utm_content=business&utm_campaign=socialflow-organic&utm_source=twitter&utm_medium=social
