Canadian softwood producers positioned to reap big refunds on U.S. lumber tariffs

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Canadian softwood producers are positioned to reap large refunds after paying deposits totalling US$6.1-billion in U.S. lumber tariffs over the past six years.

The U.S. Department of Commerce decided this week to maintain the policy of imposing tariffs on Canadian lumber shipments south of the border. Duty rates are set to rise this summer for Canada’s two largest lumber companies, while most other Canadian producers will see a modest decline in their tariffs.

After adding interest to duties already held by the U.S. government, the accumulated tariffs paid by Canadian producers since 2017 are now valued at US$6.5-billion, according to a study by CIBC Capital Markets Inc. analyst Hamir Patel.

While the trade fight lingers, Mr. Patel said history is on the side of Canadian producers, who recouped 80 per cent of the U.S. lumber tariffs paid in the previous round of the dispute from 2001 to 2006.

But on the downside for Canadian producers, the protracted battle has resulted in decreased market share in the United States in recent years, exacerbated by constraints in timber supplies in British Columbia.

Amid increased production in the U.S. South, Forest Economic Advisors estimates that U.S. producers as a whole accounted for 68 per cent of their own country’s domestic consumption of lumber last year. Canada’s share of U.S. lumber consumption has been steadily eroded, falling to 26 per cent last year, compared with nearly 33 per cent in 2016, said Paul Jannke, Forest Economic Advisor’s lumber economist based in Massachusetts.

The remainder of softwood shipments into the U.S. arrive mostly from Europe.

Lumber prices have fallen by three-quarters since peaking in the spring of 2021, when demand from renovators was surging during the COVID-19 pandemic. Mr. Jannke said that while there aren’t signs of a trade truce this year, there could be greater incentive to reach a pact if lumber prices sink further.

Billions of dollars in tariffs being held on deposit in the U.S. could prove to be crucial, especially if Canadian producers find themselves strapped for cash. “If lumber markets weaken, that money becomes necessary in order to maintain operations and you could see both sides more willing to negotiate,” Mr. Jannke said in an interview on Wednesday.

The 2006 Canada-U.S. softwood agreement expired in October, 2015, with no replacement. The pact placed a cap on Canada’s market share in the U.S. at 34 per cent, but the U.S. lumber industry has been lobbying for a revised system that would include quotas to limit Canada’s market share to 20 per cent.

Duty rates have fluctuated in the cross-border dispute that dates back to the early 1980s.

Mr. Patel said he believes the majority of the deposits will be eventually returned to Canadian producers, depending on not if, but when, a new trade agreement is reached. He cautioned that any softwood pact could take another 18 months to materialize, with refunds taking many more months to process before showing up in Canadian producers’ bank accounts in 2025.

The powerful U.S. Lumber Coalition has been an effective lobby group over the years, winning political backing from federal U.S. senators keen to protect sawmill jobs in rural areas in softwood-producing states.

“Short of Congressional action, the U.S. industry has an effective veto on any potential deal under U.S. trade law,” Mr. Patel said in a research note.

The preliminary new tariffs are scheduled to take effect by the end of this summer. West Fraser Timber Co. Ltd. WFG-T, Canada’s largest lumber producer, faces paying combined countervailing and anti-dumping duties of 9.38 per cent, compared with the current 8.25 per cent.

Canfor Corp. CFP-T would have a combined new rate of 7.29 per cent, compared with 5.87 per cent today. West Fraser and Canfor are both based in Vancouver.

The Commerce Department, which conducted its fourth administrative review based on lumber prices in 2021, could further adjust duty rates by August.

The combined new rate at Saint John-based J.D. Irving Ltd., which ranked as the fifth-largest lumber producer in Canada in 2021, has been set at 7.77 per cent.

Irving has been seeking to overturn what it considers to be the U.S. overcharging for the anti-dumping rate. The New Brunswick-based producer recently paid tariffs at a countervailing rate of 2.41 per cent and anti-dumping rate of 11.59 per cent for a total of 14 per cent, instead of the original expectation of that same countervailing rate, but an anti-dumping duty of 4.76 per cent, for a total of 7.17 per cent.

Most other Canadian producers face paying combined countervailing and anti-dumping duties of 8.24 per cent starting this summer, compared with the current 8.59 per cent.

The U.S. Lumber Coalition said this week that it will continue to push for the enforcement of countervailing and anti-dumping duties.

Amid fight over tariffs, Canadian lumber giants expand into U.S. forests

“A level playing field against subsidized and dumped imports is particularly important during times of down markets when U.S. mills can least afford to lose sales to Canada’s harmful unfair trade practices,” coalition chairman Andrew Miller said in a statement.

The Canadian government is defending producers located in various provinces, especially British Columbia, Quebec, Ontario, Alberta and New Brunswick. In the decades-long bout of political back-and-forth over trade rules, the U.S. lumber industry has repeatedly disrupted Canadian companies in what International Trade Minister Mary Ng views as a protectionist strategy.

“What we need are partners across the border who work with us, not against us,” the B.C. government said in a news release on Wednesday.

Most trees in Canada are on publicly owned land, in contrast with the U.S., where most timber is on private property and companies pay market rates to harvest, U.S. producers say.