Final AD/CVD Rates

Hard to rationalize. Where does the characterization of ‘dumping’ come in as a rationale in the prevailing supply-demand scenario?
Here is today’s report from Inside U.S. Trade’s World Trade Online (2 Nov 2017):

With the U.S. and Canada unable to reach a long-term settlement, the Commerce Department on Thursday announced affirmative final determinations in antidumping and countervailing duty investigations of softwood lumber imports from Canada.

The announcement prompted Canada to threaten litigation through the North American Free Trade Agreement or the World Trade Organization.

“While significant efforts were made by the United States and Canada, and the respective softwood lumber industries, to reach a long-term settlement to this on-going trade dispute, the parties were unable to agree upon terms that were mutually acceptable,” Commerce said in a statement. “As a result, the investigations were continued and Commerce reached its final determinations.”

Commerce said it determined that exporters from Canada have sold softwood lumber in the U.S. at 3.20 percent to 8.89 percent less than fair value. It also said Canada was providing unfair subsidies to its softwood lumber producers at rates from 3.34 percent to 18.19 percent.

The department will instruct Customs and Border Protection to collect cash deposits from lumber importers based on those final rates.

A fact sheet issued by the department noted that it found “critical circumstances” in the AD investigation for certain Canadian exporters but not others. “Consequently, Commerce will instruct CBP to impose provisional measures retroactively on entries of softwood lumber from Canada, effective 90 days prior to publication of the preliminary determination in the Federal Register, for the affected producers and exporters,” the fact sheet states.

It also notes that certain softwood lumber products “certified by the Atlantic Lumber Board (ALB) as being first produced in the Provinces of Newfoundland and Labrador, Nova Scotia, or Prince Edward Island (the Atlantic Provinces) from logs harvested in these three provinces should be excluded from the scope of the AD and CVD investigations.”

Commerce Secretary Wilbur Ross said that while he was “disappointed that a negotiated agreement could not be made between domestic and Canadian softwood producers, the United States is committed to free, fair and reciprocal trade with Canada.” He said the U.S. decision was “based on a full and unbiased review of the facts in an open and transparent process that defends American workers and businesses from unfair trade practices.”

Ross had been negotiating with Canada in the hopes of reaching a suspension agreement and pushed the final determination deadline from late August to November.

“I remain hopeful that we can reach a negotiated solution that satisfies the concerns of all parties,” Ross said on Aug. 29, announcing the extension through Nov. 14, which he said “could provide the time needed to address the complex issues at hand and to reach an equitable and durable suspension agreement.”

But Ross in June received criticism from the U.S. lumber industry when he tried to negotiate with the Canadians because, sources said then, the positions he outlined ran counter to the longstanding U.S. demand for a quota-only approach and would therefore undermine the U.S. negotiating position.

One source told Inside U.S. Trade in June that Ross “would like to get it off the table one way or the other,” before NAFTA renegotiation talks began in August. But, the source said, “Ross doesn’t know how complicated this is.”

Industry and government sources claimed Ross’s department was lacking the expertise needed in dealing with the file and doubted that Ross would be able to reach an agreement before the final determinations were set to be made.

Softwood lumber from Canada were estimated to be worth $5.66 billion in 2016, Commerce said.

The U.S. Lumber Coalition, which kicked off the case in November 2016, lauded the Commerce determinations. “We are pleased the U.S. government is enforcing our trade laws so that the U.S. lumber industry can compete on a level playing field,” the group’s co-chair, Jason Brochu, said in a statement. “The massive subsidies the Canadian government provides to their lumber industries have caused real harm to U.S. producers and their workers. With a fair-trade environment, the U.S. industry, and the 350,000 hardworking men and women who support it, have the ability to grow production to meet much more of our country’s softwood lumber demand.”

Canada, meanwhile, blasted the move in a statement issued by Foreign Affairs Minister Chrystia Freeland and Natural Resources Minister Jim Carr.

“The Government of Canada will continue to vigorously defend our industry against protectionist trade measures,” they said, calling the duties “unfair, unwarranted and deeply troubling.”

“We will forcefully defend Canada’s softwood lumber industry, including through litigation, and we expect to prevail as we have in the past,” they added. “We are reviewing our options, including legal action through the North American Free Trade Agreement and the World Trade Organization, and we will not delay in taking action.”

Carr and Freeland also said they would “continue to engage our American counterparts to encourage them to come to a durable negotiated agreement on softwood lumber.”

If the U.S. International Trade Commission makes affirmative final injury determinations in the softwood lumber case, Commerce said, the department will issue AD and CVD orders. A negative final injury determination will terminate the investigation with no duties assessed.

The ITC is set to make its final determinations by Dec. 18

Bigfoot Blame

Clearcut logging in BC’s Bigfoot country is the latest explanation ascribed to trackers’ inability to pin down sasquatch in the woods. According to reports in today’s Vancouver Sun, a sasquatch tracker out of Golden, BC aims to take the provincial government to court to prove beyond a shadow of a doubt (or a guy in a gorilla suit) that the legendary creature roams the BC wilderness.

In a civil lawsuit filed in BC Supreme Court on Monday, it’s reported the BC Ministry of Environment and BC Fish and Wildlife Branch is charged with “dereliction of duty pertaining to the interests of an indigenous wildlife species.” The plaintiff suggests that logging played a role in disappearance of the hairy beast’s natural habitat. Some wonder if impending Halloween tricksters might scare the creature into view. Just sayin’.

Meanwhile, for traders returning from back-to-back Forest Products Conferences in the Northeast this week, sometime seemingly invisible realities shaping lumber markets may be coming into view. When the busy LBM Advantage show concluded Tuesday in Baltimore, vendors boarded rail cars for Philly to attend a jampacked LMC Expo Wednesday and Thursday. Key takeaways from the Dakeryn tabletop visits? The market’s hot and the supply chain is fractured. No Halloween costumes can disguise it. Moreover, rumours are swirling the duty timeline is aggressively moving up. Traders wonder if countervailing duties on cross-border shipments will now be in effect as soon as mid-November. In midst of the unprecedented wildfire season in BC, could free-of-char (FOC) lumber be tax-exempt? While perception among some US lumber retailers suggests that duties are beneficial to their bottom line, at least one major dealer struggling for supply described the ongoing softwood lumber dispute as “bizarre”.

Lumber Market Pricing

“What’s going to stop this market?!” is among the questions that lumber traders are pondering these days. Could softwood negotiations be the determining factor? What if the U.S. Department of Commerce throws out the case? More weather-related factors? This time, snow? Salvage logging? Traders taking a position, a stand, …or, a knee?

Back in 1994, when Michael Carliner was Staff VP for Economics at the National Association of Home Builders (NAHB), he wrote What’s Driving Lumber Prices?. In the article, it’s noted that changes in inventory levels create expectations on future levels of activity. It’s accepted that expectations about future supply and demand are key determinants in short-term behaviour of market participants. We’re told that rising prices, such as have been experienced, may of themselves create expectation of further price increases, causing speculative behaviour.

Carliner points out that historically, prices of lumber have not increased gradually with increased demand and constrained supply. Instead, data suggests an erratic pattern of booms and busts that are largely attributable to changes in expectations about future supply. Historically when supplies were not so uncertain, changes in housing statistics and other demand factors were reportedly less pronounced in their impact on short-term market pricing. We’re told that price spikes occurred when market participants were subject to uncertainties in policy, litigation impacting trade, plus the many additional factors that historically impact timing between a tree being felled and being delivered as lumber to market.

What’s different now?

The run-up in lumber prices over the past few months contains some short-term speculative elements, but the underlying trend is toward higher average prices.
– Michael Carliner, Housing Economist (January, 1994)

On this National Tree Day, any image of a tree is music to our ears! Hat Tip: Al Harder (Source: boredpanda.com)

An Accident of Circumstance

Some participants on both sides of the softwood lumber dispute are seemingly struggling to understand basic tenets of supply and demand. A global market is in play in the long run to influence supply and pricing. However, as this Bloomberg report demonstrates, imposition of duties on Canadian softwood lumber is mostly hurting U.S. consumers these days.

This unexpected boon for Canadian lumber producers is essentially an accident of circumstance. The attacks on Canadian lumber exports combined with serious wildfire issues in both Canada and the U.S. have served to reduce lumber supply. Meanwhile, the recent hurricanes that impacted the U.S. have led to a spike in construction – causing lumber demand to soar.

The result of these simultaneous supply/demand pressures has been a sharp surge in lumber prices. According to The Globe & Mail, Canadian softwood lumber producers have seen gains in their share prices of more than 40%. In contrast, U.S. lumber producers are averaging gains of only 10%.

The end result of the latest harassment on Canadian companies is that these companies have become more profitable, while U.S. consumers are paying significantly inflated prices for lumber – even as natural disasters have created an imperative need for new U.S. construction.

– Stockhouse Newswire 09-20-2017

Talk About the Weather

On the heels of the worst wildfire season in memory, a continent braces for reportedly the most dangerous hurricane ever. There’ll be time later to cast all this talk of weather in relation to climate change. For now, the impact on human lives is of foremost concern. Even so, lumber traders try to make sense of the variables that shape lumber markets thrown into unpredictability by virtue of trade talk uncertainties and subject to more volatility by forces of nature.

The reporting of Random Lengths since July (see excerpts from Random Lengths Lumber Market Reports below) suggests that traders sensed greater downside market risks heading into September. Pricing trends in evidence this week suggest the opposite to be true. We’ll share buyer caution in interpreting the changes that shape lumber markets this fall. Hazarding pricing forecasts seems especially risky for the remainder of this year. A recent posting we noted on a Vancouver church sign this week might have been aimed as a caution at bloggers and lumber reporter forecasters: “If pride comes before a fall, we should see humility by winter.”

July 21
“Some traders pointed to the gap in the application of the preliminary CVD on Canadian imports that starts August 26, hoping that prices would ease with no CVD in place.”

July 25
“While some quicker loads developed, mills widely quoted shipments for the weeks of August 14 and 21. Buyers were leery of booking into or beyond those weeks. They cited the coming pause in the countervailing duty, a steep discount in September futures, and quicker shipments from secondaries.”

July 28
“But the coming pause in collection of countervailing duties starting in late August, and the possibility of a lumber trade deal between the U.S. and Canada, left traders sensing downside price risk in the weeks ahead. Many turned to secondaries to fill holes in inventories.”

Aug 1
“With the preliminary CVD only in effect through August 25, buyers of Canadian S-P-F showed an increased fear of downside risk. The futures market’s huge discount to cash gave buyers another reason for caution.”

Aug 4
“Buyers maintained the view that purchases at current levels in advance of the onset of the gap in the countervailing duty carried risk. Producers, meanwhile, were largely content to limit sales to the U.S. until the gap starts, if not stack production until then.”

Aug 8
“Buyers anticipated downside in Canadian lumber amid the gap coming in the CVD. Reports circulated that shipments could be CVD-free as early as August 14.”

Aug 11
“Trading slowed as buyers’ sense of the market turned more bearish. Numerous factors weighing on the market generated uncertainty, which in turn led to a cautious approach. Topping the list was the coming pause in the countervailing duty, and anticipation that Canadian mills could lower prices with the nearly 20% CVD suspended.”

Aug 15
“A bearish tone grew more prevalent in softwood lumber and structural panel markets. Near record prices in many markets kept buyers only purchasing enough to fill in inventory, amid increasing fears of downside risk. Traders awaited next week’s countervailing duty gap period.”

Aug 18
“Dealers, distributors, and office wholesalers were reluctant to purchase more than immediate needs. They cited current price levels, the suspension of the preliminary CVD, and a slowdown in consumption as key reasons to hold back.”

Aug 22
“Buyers grew more concerned about downside risk and delayed purchases as long as possible. The pause in the countervailing duty on Canadian shipments to the U.S. takes hold at the end of the week, causing further fear.”

Aug 25
“Buyers anticipated opportunities to buy Western and Eastern S-P-F at lower levels with the August 25 arrival of the CVD-free period. Producers, however, proved to be far less vulnerable than buyers anticipated.”

Aug 29
“Monday’s announcement by the Commerce Department of a two month delay in the final determination of the countervailing and anti-dumping duty cases drove many buyers to the sidelines, waiting to determine a market direction.”

Sept 1
“Activity in S-P-F markets picked up Wednesday and Thursday once buyers digested news on the CVD case and returned to the market.”

Sept 8
“Many buyers.. scrambled for coverage, having held off for weeks in anticipation of a pullback once the pause in the countervailing duty on Canadian shipments to the U.S. commenced. Many were wary of booking loads past September at current prices.”

Log flume – Lower Seymour Conservation Reserve (North Vancouver, BC)

Summer Haze

While smoke from B.C. wildfires hangs heavily over Interior and Coastal landscapes, so too a certain smoke obscures lumber market horizons searching for uncertain outcomes of softwood lumber negotiations.

When prices climb, lumber as a commodity finds extra supply available: mills re-open, add shifts, build more mills, areas that were too remote to haul timber from become more economical etc. But we interrupt this program with an unprecedented wildfire season. Fire danger has disrupted logging operations, stalled production at a number of mills, and fractured the transportation chain. As the contractor handling our recent home renovation liked to point out, “These costs are real.” Perhaps most alarming, reports this week tell us industry analysts are concerned the fires will compound B.C.’s dwindling timber supply. “Part of the tragedy we are dealing with is that fires are also burning through trees spared by the pine beetle outbreak, including young planted stands that were being counted on as timber supply over the next several decades,” said Phil Burton, professor of forest ecology and management at UBC here.

Traders meanwhile point to the upcoming expiration of the preliminary countervailing duty on Canadian softwood lumber shipments to the United States week of August 28th. Following the recent spike in lumber prices, many dealers appear to be anticipating a steep market correction when the 20% CVD is lifted. Will the bottom fall out? If only things were that simple. We’re told negotiations for a possible new SLA involving a cap on market share are progressing. While there is perceived motivation and hope for striking a deal before NAFTA negotiations are set to begin, some have now questioned that timeline, warning the U.S. Lumber Coalition’s “de-facto veto” on any proposed agreement might prolong the dispute, suggesting a quick resolution may not be congruent with their interests.
BREAKING: U.S. industry rejects Canada’s latest softwood-lumber proposal

Burrard Inlet today, and downtown Vancouver

What’s wrong with this picture?

We’re told that “rising material costs” were a significant factor in the wake of 51% of U.S. home builders raising prices last month. This according to surveys conducted by John Burns Real Estate Consulting, noting this ratio marks only the second time in the last 10 years more than half of new home communities raised prices – the highest rate since the dramatic surge in U.S. housing prices in 2013. Meanwhile The Economic Calendar reports here that “cost pressures” can help to explain why housing starts and permits have been relatively uneventful over the past few months. The National Association of Home Builders (NAHB) suggests that this trend of firming confidence in the face of underwhelming housing data is liable to continue due to “supply-side issues.”

Aside from unprecedented seasonal B.C. wildfire impact on lumber markets, restricted fibre supply looms on the horizon. At the same time as questions of housing affordability challenge builders and consumers across the continent, does it make sense for narrowly defined interests of The U.S. Lumber Coalition to seek further price-increasing tariffs on lumber imports?

Some of the groups that are hurt by foreign competition wield enough political power to obtain protection against imports. Consequently, barriers to trade continue to exist despite their sizable economic costs.
The Concise Encyclopedia of Economics

More: Canadian Wildfires Choke Lumber Supply to U.S. Home Builders – WSJ