British Columbia Coastal Forest Industry Update

Keta Kosman, Publisher and Editor, Madison’s Lumber Reporter February 20, 2017

The annual Truck Logger Association Convention & Trade Show was held in Vancouver, BC, on January 18 to 20 this year, to a jam-packed crowd of attendees and some very interesting presentations. As always, lunch featured the BC Premier, Christy Clark, and many provincial political representatives, and for the next day breakfast was a speech by BC Minister of Forests, Lands and Natural Resources Operations Steve Thomson.

Among the economic and technical presentations a recurring theme that was brought up often was the now-resurrected Canada-US softwood lumber trade dispute. There were a lot of questions but not many answers, as details of this important topic are currently unfolding.

However, on the subject of what impact very real looming US duties on Canadian softwood lumber exports will have on construction framing lumber prices, Madison’s Lumber Reporter was able to provide some clarification which is detailed here. As are price updates over the past month.

The week before the TLA conference, Madison’s reported BC dimension cedar producers hiked prices another ten per cent or more over the usual annual/seasonal price increases, with plans for further hikes designed to mitigate forthcoming retroactive duties on their US-bound shipments.
At least one large producer was “working hard” at getting Western Red Cedar exempted from the ongoing and embittered US-Canada softwood lumber dispute, according to Madison’s. In the meantime, covering their bases was paramount, and that meant passing on higher costs to less-than-happy customers.

For example, in the January 13 issue of the Reporter, Western Red Cedar Rough Timbers, Appearance Grade 4×4 prices increased by $155, or 13%, to US$1205-1295 mfbm, from US$1050-1125 mfbm.

The sale of cedar lumber (specialty item, coastal species) in the northwest of North America is generally handled differently than standard dimension lumber. Where the latter is sold at regular large volumes by producers and secondary suppliers (wholesalers) weekly  — buyers and sellers usually have a certain number of rail cars on order — cedar sales are negotiated on a quarterly basis, with forward-looking program buying contracts.

While dimension lumber prices can fluctuate by large margins over the course of a year, cedar prices basically just go up, or stay stagnant for many months, as suppliers and customers make long-term arrangements. Madison’s dimension lumber graphs waver between disparate highs and lows over the years, while the cedar graphs look like steps always going up.

Emboldened by their specialty-product colleagues, a couple of weeks after the cedar price increases were accepted in the marketplace standard construction framing lumber producers also increased their prices across the board — all species, all sizes — as their own hedge against potential duties on wood crossing the US border.

Standard grade dimension lumber prices jumped 15 – 20 per cent the week of February 10, 2017:

Benchmark dimension lumber commodity Western Spruce Pine Fir KD 2×4 #2&Btr up US$72 ( 19% ) to US$388 mfbm compared to one year ago.

Eastern Spruce Pine Fir KD 2×4 #2&Btr up US$24 ( 9% ) to US$450 mfbm compared to one year ago.

Southern Yellow Pine KD 2×4 #2&Btr up US$20 ( 4% ) to US$470 mfbm compared to one year ago.

Douglas Fir green 2×4 #2&Btr up US$15 ( 4% ) to US$367 mfbm compared to one year ago.

Price comparisons of current benchmark Western Spruce Pine Fir KD 2×4 #2&Btr, as well as ESPF and Southern Yellow Pine, to 2002 show levels have not reached previous heighs when compared to longer term historical trends.

SOURCE: Madison’s Lumber Reporter

Perhaps further encouraged by the significant price hikes of their dimension lumber counterparts, cedar manufacturers again raised prices the week of February 10, this time by 5%, which puts current Western Red Cedar Rough Timbers, Appearance Grade 4×4 prices at US$1275-1350 mfbm.

These purchases are now working their way through the supply chain. The largest dimension lumber producers, those based in BC, were off-the-market again last week as all their available production is sold past the end of February.

Sawmill order files for standard construction framing lumber in western Canada were three weeks or longer, into early March. Producers are reluctant to set a price on wood further out than that; as they wait for their customers to receive orders already booked and have a fresh look at their inventory.
The fact that the past few months of sales are for real demand, for real building projects happening right now, they are not for restocking or for inventory-building, means this early-season spurt of selling is likely to continue for the next little while.

Rampant trading activity on the lumber futures board of the Chicago Mercantile Exchange bears out this assessment.

The need for Canadian softwood lumber exporters to the US to build up cash reserves in the event of duties imposed at the border are also very real. Potential dates for cash deposits or bonds at the US border are:

US Customs’ retroactive Countervailing Duties collection actions, in the event of a finding of surging and the invoking of Critical Circumstances, can be assessed against scope confirmed captured materials imported into the US on or after January 24, 2017.
Retroactive Anti-Dumping Duty collection actions, under the same conditions as described above, would impact the captured materials imported into the US on or after February 3, 2017.

As it stands right now, Canada’s softwood lumber exporters — including cedar manufacturers — might find themselves facing a steep charge at the US border for CVD and ADD in April and May respectively, but on wood that crossed the border since January 24 and February 3 respectively.

Facing this harsh reality, exporters are adjusting their price lists accordingly. The request for penalty is as high as 50%, so even these recent price increases will not be enough to offset the steep charge at the US border.

Keta Kosman
Madison’s Lumber Reporter
Vancouver, BC, Canada
604 319-2266