Editor’s Note: This blog has been updated as of February 15, 2018 to reflect recent changes in Cedar and Softwood Prices.
Western Red Cedar and other Softwood lumber prices have increased by 20% to 30% since the start of 2017, and it isn’t getting better at the start of 2018. How did we get here and what can we expect going forward? Here’s what you need to know about the 2018 price surge.
Woodland Tales of Soaring Softwoods
As Cedar and other softwood prices continue to climb, the rhetoric and posturing on both the U.S. and Canadian sides swells. The effects of the 2018 disasters are yet to play out, so you need to be diligent in staying on top of material prices as you quote out into the future.
We are no longer just on the verge of a trade war, it will soon hit the bank accounts of unwary or careless builders and tradesmen.
On Monday, February 12, 2018, U.S. President Donald Trump complained about Canadian trade practices saying that “the country does not treat its neighbors fairly”. This month Resolute Forest Product’s Richard Garneau urged Canada not to knuckle under to Uncle Sam: “We believe in having strong principles and never capitulate; even though you believe that there is someone bigger and stronger you have to defend your principles”. We have seen this movie and it does not end well. We should all be prepared for a lengthy standoff.
Canadian Timber and softwoods have long been in the administration’s cross hairs. Back in November 2017 the U.S. Department of Commerce concluded that imports of Canadian softwoods are being unfairly subsidized and set a tariff at 20.8%, which is actually below the preliminary tariffs and duties set earlier in April 2017.
This feud has quickly become costly for both Canada and the U.S. Building industry.
The National Associate of Home Builders reports that “softwood lumber imports have skyrocketed 30% since last summer”. As the U.S. and Canada draw dueling lines in the sand I wish we could make them hear the sound of two heads banging together. This industry is crucial to both countries to the tune of $5.6 Billion US dollars of softwood lumber imports as reported by the U.S Commerce Department.
We must also remember the demand side effects of the 2017 Major Hurricanes in Florida, Texas and Puerto Rico as well as the wild California fire season. USA Today estimates the 2017 Hurricanes to be the 2nd, 3rd and 5th most costly disasters of all time: Harvey at $160 Billion, Maria at $90 Billion and Irma at $50 Billion. Altogether, over a quarter of a trillion dollars.
Damage does not immediately translate into demand. But, by the time insurance money is paid out, government monies and subsidies are released, and permits are pulled watch out for considerable upward pressure from the demand side as well.
Shortages as well as short-term severe price spikes are not out of the question.
The current U.S. administration’s infrastructure spending is another unknown parameter on the horizon. Looks like we are in for a wild ride in 2018. At this point, we can only hope it is a roller coaster and not a rocket ship.
Continuing reading to learn more about NAFTA and the Softwood Lumber Agreement.
The Softwood Lumber (Dis)Agreement
The bulk of the Cedar, Spruce, and Douglas Fir used in the U.S. construction industry is imported from Canada. Most of the United States’ trade with Canada is governed by NAFTA: the all encompassing trade agreement between Canada, Mexico and the U.S. that came into force in 1994. After NAFTA was enacted, Lumber producers in the U.S. still felt the Canadian government was selling tracts of trees below market value to Canadian mills since Canadian forests are largely owned by provincial governments. The U.S. companies contended this constitutes a subsidy that gives Canadian firms an unfair advantage. So, during kinder, gentler trade times the SLA or Softwood Lumber Agreement was signed in 2006 which basically says that as long as Canadian Lumber prices stay above a certain price range that the United States would not enact additional tariffs. The Canadian government would then adjust taxes on lumber exports to keep pricing in range. Everything plodded along nicely until the SLA expired last year.
IN 2017, the new U.S. administration put trade, including NAFTA and the SLA, in the cross hairs.
It’s looking increasingly like NAFTA is going to get more than “tweaked”, according to the latest meetings of new United States Trade Representative appointee Robert Lighthizer, who formerly worked for Ronald Reagan. Lighthizer told his Senate confirmation hearing Tuesday that softwood is “at the top of the list,” said the Globe and Mail on March 14, 2017. He said he recognizes that American companies want “quantitative restraint” – a limit on Canadian lumber entering the United States. “It is a very serious, intractable sort of problem. It has enormous political consequences on both sides of the border,” he told the Senate’s Finance committee. “We have to have a new [deal].”
In the midst of uncertainty, Canadian Mills have been steadily increasing prices. Until a new agreement is signed, expect pricing instability.
So, how should I bid Cedar projects?
TimberTown is dedicated to providing the highest quality Cedar and Softwoods possible at reasonable prices, but you can expect our pricing to rise with the market so keep that in mind when bidding cedar projects, especially in regards to large cedar projects. Keep your bids on a short leash. When bidding a project far in advance, be sure to give us a call first. Although we hope a consensus will be reached soon, these are governments we are talking about.