North American lumber producers have found a unique solution to their problem.
As the American government continues to introduce duties to Canadian lumber imports, Moody’s Investors Service says that sustaining the higher-than-average lumber prices in 2018 will cover the cost.
"The continuation of tight lumber markets will allow the estimated $1.2 billion of duties to be collected in 2018 to be passed on to the US consumer via elevated lumber prices," says Ed Sustar, a Moody's Senior Vice President. "This is credit positive for our rated Canadian and US lumber producers, as high prices will outweigh the cost of the duty," he said.
Moody’s noted that lumber prices have increased roughly 25 per cent in the past year, and are expected to remain high due to demand. The housing market in America is seeing a projected 6 per cent increase, due to several hurricane repair and rebuilding efforts.
The majority of Canadian lumber exporters pay an average of 21 per cent in duties for lumber shipped to America. Softwood lumber duties may eventually be revoked if the Canadian government's appeal of the duties is successful, and payments returned to Canadian producers if a new agreement is negotiated, says Moody's.
In June, Kenora MP Bob Nault noted that Ottawa is ready for a long fight with the Americans.
"This is the fifth time over the last number of decades, where we've been in some sort of a dispute with the softwood lumber coalition in the United States, who then go to the commerce department looking for a way to slap on duties to softwood lumber that's sold into the United States. So, that's the scenario," he said.
In 2016, Canada's softwood lumber imports were valued at over $5.6 billion.
For more information:
Moody’s: High lumber prices
Softwood takes another blow
Rallies support softwood
Province asks feds for help on softwood
Feds remain bullish after softwood ruling