Russ Taylor, President Russ Taylor Global, Vancouver/CA; www.russtaylorglobal.com
As Trump has threatened 25% import tariffs on all goods from Canada and Mexico (as well as 60% tariffs on China imports), Canadian lumber companies are going on the offensive by proposing 25% increases in lumber prices effective if and when the tariffs are implemented. Whether this is simply aggressive posturing and bullying by Trump to get action from Canada and Mexico – and it looks like it has definitely got the attention of Canadian politicians – or it is something that he will go through with to prove his point, exporters and buyers need to protect their businesses with short-term strategies.
A number of Canadian lumber companies are now advising customers that they will add 25% to lumber exports to the US when the tariff is announced. With Canadian mills already paying an average of 14.4% import duties on US shipments, they have no alternative but to increase prices by the 25% to cover the potential tariff.
A Linkedin post by Nic Wilson, CEO of the Denver Mass Timber Group Summit (https://www.masstimber.group/) provided his view of recent market uncertainties. He reports on January 9: “West Fraser... sent a blanket email statement out last night. That said if Trump signs a +25% tariff (to the existing import duty already in place), then any lumber that isn't already rolling on a rail into your yard will be subject to the added expense.” He indicates that “multiple big Canadian mills sent out the same public announcement.”
As a wholesale lumber purchaser/trader, Mr. Wilson’s view is that “the market will panic buy to cover their February and March inventories. It's the customer's insurance policy. Legitimately people are gambling right now, rolling the dice because some of them have been caught with their pants down, leaving their lumber in the sawmill’s yard too long. Now people are forced to panic ship, based on a "what if" scenario. The crazy part is, we do not actually know if Trump will or will not add the tariff. It is all a wild ass speculation.”
He believes that this “will trigger a panic buy the next few weeks causing runaway prices. This is textbook... ‘Buying the rumor and selling the facts.’"
This initial market reactions come after Trump’s earlier comments this week that: “We don't need their (Canadian) lumber. We have massive fields of lumber. We don't need their lumber," said Trump. "We have to unrestrict them, because stupid people put, you know, restrictions on - but I can do that with an executive order. We don't need anything they have (…referring also to cars and dairy, but not oil).”
Of course, this is another Trump mis-truth – in more ways than one. I suppose he thinks that lumber grows in fields and you just have to go get it. Of course, he is referring to forests that are restricted for various reasons – conservation, parks and sustainably managed forests, etc. He does not seem to understand that you need capital (harvesting machines, logging trucks) and skilled labour to ramp up any log harvests. So, unrealistic in the short term. And then you need sawmilling capacity which could be ramped up somewhat, but US mills are already running at around 85% of capacity (and they do not often get to 90%) and you also need labour. Too bad he will be returning thousands of undocumented immigrants to their home countries, as it sounds like they could be needed – and not just build houses.
Here are some of the facts about Canada-US lumber products trade estimated for 2024 (after seeing a number of erroneous reports):
- Canada softwood (SW) lumber exports to US = 12 billion board feet (bf) = 24% of US consumption.
- Non-Canada SW lumber exports to US = 3.5 billion bf = 7% of US consumption.
- Canada SW lumber production = 20.5 billion bf
- US SW lumber production = 36 billion bf.
- US SW lumber consumption = 50 billion bf
- Canada SW lumber exports to US as a % of total Canada production = 60%
- Canada SW lumber exports to non-US markets = 1.4 billion bf
Bottom Line: the US needs Canadian lumber; Canada really needs the US lumber market!
And here are some of the facts about Canada-US OSB trade estimated for 2024:
- Canada OSB exports to US = 6.25 billion square feet (sf) = 30% of US consumption.
- Non-Canada OSB exports to US = 0.4 billion sf = 2% of US consumption.
- Canada OSB production = 8 billion sf
- US OSB production = 15 billion sf
- US OSB consumption = 21.5 billion sf
- Canada OSB exports to US as a % of total Canada production = 75%
- Canada OSB exports to non-US markets = 0.4 billion sf
Bottom Line: the US needs Canadian OSB; Canada really needs the US OSB market!
Canadian exports of MDF and particleboard go mainly to the US (98% of total exports) while plywood exports to the US are small at 300 million sf and represent about 3% of US consumption.
So, waiting to see what Trump will do with 25% tariffs has already spooked the markets. Let us see what Trump’s strategy really is, as the tariffs will backfire very quickly if implemented, causing higher prices and inflation and the potential of shortages and job losses. Interesting times!
Russ Taylor
RUSS TAYLOR GLOBAL
www.russtaylorglobal.com
russtaylor@russtaylorglobal.com
