Russ Taylor, President of Russ Taylor Global, Vancouver/CA; www.russtaylorglobal.com
Since early March, W-SPF 24 random lengths (FOB BC mill) prices have declined by almost 25% – from US$570/Mbf ($368/m3) to US$437/Mbf (US$/282/m3) in mid-May. Similarly, E-SPF 2x4 (delivered Great Lakes) has declined by 14% – from US$640/Mbf ($413/m3) to US$550/Mbf (US$/355/m3 – add about US$10/Mbf for random length and US$75/Mbf for 16’ lengths delivered to US Central East Coast). Mill gate W-SPF 2x4 prices are currently at a $17/Mbf discount to southern yellow pine (SYP) 2x4 compared to a peak premium of $180 in early March, and the 15-year average price of SPF is at a ~$40 mill gate discount to SYP. As well, SPF prices may have bottomed out and SYP prices may have peaked in the week ending May 16 – at least for now.
The proposed 25% tariffs were the catalyst for SPF prices rising in the first two months of 2025, as current prices are exactly where W-SPF prices started off at the start of 2025. In other words, the price rise in SPF lumber was strictly tied to the potential of 25% Trump tariffs being applied on Canadian lumber and not from market demand. Today, this puts BC Interior SPF mills back near break-even levels (on an EBITDA basis) at current lumber prices. With tariffs in suspension mode, the US market fundamentals have now been exposed – the market is weak and remains weak – and there is too much supply – again!
The impact of President Trumps trade war with the world has caused US consumer confidence to fall, interest rates have remained high, and housing starts are now expected to decline in the short-term. Drivers of consumption have been reading negative since second quarter from the impact of Trump tariffs, and this is now showing up in weak lumber prices.
No one knows if or when tariffs could be applied to forest and wood products as well as derivative products from the section 232 investigation and what the tariff levels might be by country. If tariffs are applied, that will be a game-changer, as higher import costs will cause US lumber prices to rise. Canadian lumber will be subject to elevated import duties in about August (rising from the current 14.4% to near 34.5%). This factor alone will cause Canadian lumber prices to rise – perhaps by another 15-25%. Any tariffs on Canada and/or other countries will only increase lumber prices further – and significantly.
The noise that the US does not need Canadian lumber – or from other countries – is completely bogus. Imports represent 14 billion bf (22.5 million m3) and 30% of US consumption – any imports subject to tariffs can only raise lumber prices higher. US lumber capacity could be increased a small amount in the short term – perhaps some 2-3%, or 3-5 billion bf (5-8 million m3). Further capacity increases are possible, but new projects or sawmills will take many years to reach start-up and will require significant capital as well as skilled and unskilled labour in logging and sawmilling that is currently unavailable. As a result, US lumber prices are posed to rise significantly just from the increase in Canadian duties coming into effect in the second half of the year By the way, southern yellow pine lumber output is larger than all of Canada’s production, so SYP production – and prices – can have a sizeable impact on North American lumber prices.
European sawmills could be exposed to tariffs under the US Section 232 investigation. With high log prices in most key European sawmilling regions, higher sawnwood prices will be required to sell to the US market. As a result, the silliness of US trade policy and bureaucrats will only result in raising lumber prices to the US consumer. How much of the tariffs (or Canadian duties) are passed on to the consumer is the only wild card, but it will be the majority!
