Tariffs may accelerate Canadian lumber industry’s southward shift, hunt for new markets
March 20 (Reuters) – U.S. President Donald Trump’s threat of tariffs could prompt more Canadian lumber producers to move to the southern U.S. border, accelerating efforts to find new markets, wood industry experts said.
The tariffs are the latest in a nearly four-decade dispute between the two neighbors over softwood lumber, used in construction, furniture, and paper production.
Tariffs on Canadian lumber could reach 40% when the current 14.54% tariff and Trump’s proposed 25% tariff are added. Trump suspended tariffs on goods that comply with the United States-Mexico-Canada Agreement until April 2.
Washington has claimed that Canadian lumber products are subsidized and sold in the United States at less than their fair market value. Canada successfully challenged these tariffs under the dispute settlement provisions of multilateral trade agreements. Canada supplies about a quarter of the United States’ timber, and over the past decade, many Canadian sawmills have moved their operations to the southern United States, driven by the cheap, abundant, and readily available timber on private lands, compared to state lands subject to strict harvesting policies.
“Variable log costs and availability are the primary drivers here, but Canadian investment in the region has been driven in part by the relocation of operations to areas where they avoid the impact of tariffs,” said Dustin Jalbert, senior economist in the wood products division of the commodity pricing agency Fast Markets.
For example, Canfor (CFP.TO) closed its operations in British Columbia, citing difficulties sourcing economical fiber, losses, weak markets, and US tariffs.
The company indicated in its latest quarterly earnings report that approximately 70% of its lumber operations are now located outside Canada, while Weyerhaeuser (WY.N) manufactures 80% of its lumber in the United States.
Canfor, Weyerhaeuser, and several Canadian companies declined to comment for this article.
“In 2004, there were only two Canadian sawmills,” said Kyle Little, chief operating officer of Sherwood Lumber, a New York-based company that supplies more than 2,000 sawmills and lumber manufacturers in the United States. “Today, we have more than 50.”
“Canadian companies now produce more than a third of the output of the largest producing region in the United States, the American South,” he added.
Fast Markets reported that the southern United States surpassed Canada in softwood lumber production capacity in 2022 and will continue to grow throughout this decade.
The decline in British Columbia’s production, which has halved since 2017, is negatively impacting Canada’s market share.
“For years, producers have chosen to open mills in the southern United States because of the challenges they faced in Canada,” said Morningstar analyst Spencer Lieberman, and tariffs could accelerate this process.
Alternative Markets
British Columbia could begin redirecting its supplies to the Asia-Pacific region to avoid tariffs, said Kurt Nikidet, president of the British Columbia Lumber Trades Council.
However, this will be challenging because Canadian sawmills are primarily designed to meet the needs of the U.S. housing sector.
“Our alternatives around the world are already somewhat stretched,” said Sean Stead, vice president of sales and marketing for Vancouver-based building materials company Interex Forest Products.
Pain in the Woods
The disruptions are causing pain for both businesses and customers.
“Even in modest growth scenarios, it will likely take nearly a decade to fully replace Canadian (U.S.) supply,” said Jalbert, highlighting further short-term financial hardship for an industry facing multiple challenges.
Lumber futures hit a two-and-a-half-year high, topping $650 per thousand board feet in March.
Prices could reach $765 in the weeks or months following the tariffs’ implementation, pushing the cost of an average home to more than $10,000, said Jorge Carrillo, CEO of the Hispanic Building Council.