The tariff was meant to punish Canadian suppliers, who were judged to be selling below fair market value in the U.S., where they supply 95% of all imported lum ber.
The homebuilders association says the tariff is the major reason behind record high lumber prices, which have jumped almost 60% since the tariff became a possibility in early 2017.
And that's translated into a $9,000 increase in the average cost of a new single-family home.
In one sense. the tariff has worked. Imports of Canadian lumber fell 15% in the first quarter from a year ago. The problem is U.S. production rose only 3% during that time. Experts say it will take years for the U.S. industry to ramp up production enough to compensate for the lost imports.
The futures rose 1 percent to close at $619 per 1,000 board feet on the Chicago Board of Trade. They’ve surged 66 percent in the past 12 months, a bigger gain than any of the raw materials tracked by the Bloomberg Commodity Index.
Price are likely to keep rising, according to analysts at Bloomberg Intelligence and much to the chagrin of U.S. homebuyers. Here’s what supporting the market:
The lumber rally picked up steam after the U.S. in November imposed average import duties of 21 percent on Canadian shipments of timber following a years-long trade dispute. While the move supports U.S. producers, it’s bad news for domestic builders, who get more than a quarter of their needs from north of the border. For house construction in particular, the U.S. simply doesn’t have enough supply to meet demand. The National Association of Home Builders, an American industry group, estimates the tariffs will increase the price of an average single-family home built in 2018 by $1,360.
Canada’s rail delays haven’t left just grain and oil stranded on the Prairies. Lumber producers such as Canfor Corp. and West Fraser Timber Co. also have piles of inventory stacked at their sawmills because of a lack of transport capacity. Canada is the biggest softwood lumber exporter to the U.S., and the disruption is contributing to price gains. Producers may work through the backlog this year -- Interfor Corp. said this month it plans to catch up on shipments in the second quarter.
Single-family housing starts, which use about three times as much wood as multifamily construction, continue to increase, and orders are expected to rise now that spring building season has arrived. The U.S. housing recovery and demand for residential repairs may lift lumber consumption in 2018, according to RISI, Bloomberg Intelligence analysts Joshua Zaret and Evan Lee said Tuesday in report. They also cite "razor-thin” inventories, owning to the duties and transportation delays, as well as a seasonal uptick in demand. The framing-lumber composite price probably will rise 20 percent in 2018 to a record, according to Bloomberg Intelligence.