Shares of Canadian lumber companies surged Tuesday after the U.S. administration’s tariffs on softwood lumber turned out to be less severe than some analysts had predicted.
The tariffs of as much as 24 percent prompted a rally in Canadian lumber stocks. West Fraser Timber Co. rose as much as 10.5 percent, the biggest gain in six months. Canfor Corp. rallied 10.2 percent, the most since Jan. 22, and Interfor Corp. gained 4.7 percent.
“There’s a bit of a relief rally today,” RBC Capital Markets analyst Paul Quinn said by phone. “There was always a fear in the marketplace and that led to higher lumber prices.”
That didn’t stop executives from criticizing the U.S. measures, which were announced late Monday in Washington.
The action is unwarranted and uses arguments previously rejected by North America Free Trade Agreement panels, West Fraser Chief Executive Officer Ted Seraphim said on an earnings call. The tariffs are “inappropriate,” said Seth Kursman, a spokesman for Resolute Forest Products Inc., the world’s largest newsprint maker, whose shares climbed as much as 3.6 percent.
Prime Minister Justin Trudeau’s administration also vowed to fight back.
The long-running trade dispute was reignited in November when the U.S. industry filed a petition asking for duties. It alleges Canadian wood is heavily subsidized and imports are harming U.S. mills and workers.
Canada is the world’s largest softwood lumber exporter, and the U.S. is its biggest market. The trade spat contributed to a more than 20 percent surge in wood prices since the U.S. election on concern penalties would increase costs even more.
On Tuesday, lumber futures fell by the $10 exchange limit in Chicago, dropping 2.5 percent. They may decline further as the 20 percent tariff won’t curb Canadian shipments to the U.S., Quinn said. The recent price rally was meant to offset any impact of high duties that were potentially retroactive, he said.
Montreal-based Resolute will pay a subsidy rate of 12.8 percent on its lumber exports to the U.S., according to a preliminary determination by the U.S. Department of Commerce. While that’s lower than West Fraser’s 24.1 percent and below the 19.9 percent average, the company ships about 65 percent of its lumber to the U.S. and doesn’t have access to Asia or a trade avenue to the U.S. South to counter the fee like some Western Canadian producers, Kursman said.
West Fraser will “vigorously defend itself” against the U.S. tariffs, and the company expects duties will be removed and refunded eventually, Seraphim said.
A second round of duties is expected June 23, and the duties are expected to be finalized by January of 2018.
Shares of U.S. home builders fell, with the S&P Supercomposite Homebuilding Index dropping as much as 2.6 percent.
Canada has said it will fight the tariffs, which are an “unfair and punitive duty” imposed on “baseless and unfounded” allegations, according to a joint statement from Foreign Minister Chrystia Freeland and Natural Resources Minister Jim Carr.
The public nature of criticism from Trump isn’t helping, former U.S. ambassador to Canada Bruce Heyman said in a Bloomberg TV interview. “It’s just a huge mistake, to take your best friend and next door neighbor and start poking at them really hard,” he said.
Quebec, where 60,000 people work in the forest-product industry, is putting in place a program of loans and loan guarantees to help the sector, Economy minister Dominique Anglade said at a press conference in Quebec City Tuesday, adding the province’s aid package could be worth as much as C$300 million. The loan conditions will be market-based, she said.
British Columbia Premier Christy Clark warned against jumping in to support the industry financially because it could “really jeopardize our position in court.” Ideally the industry needs to break from its dependence on the U.S. market, she said.
“It is our hope that one day that our market will be so diversified that we don’t need another softwood lumber deal with the U.S.,” Clark told reporters at a saw mill east of Vancouver today. Clark, who is up for re-election in a provincial poll next month, said that if her party wins, she plans to add trade missions to India, China and Japan to drum up more lumber trade with Asia.
Ontario and Quebec producers should have free access to the U.S. market, Kursman of Resolute Forest said. Quebec now has public auctions for timberland, a system that mirrors how land is sold in the U.S., and a Nafta panel previously determined that any subsidy level in Ontario is negligible, he said. The fact that Nafta panels have previously rejected U.S. arguments was also cited Monday in a statement from the B.C. Lumber Trade Council, which represents companies including Canfor, West Fraser and Interfor.
Log costs in some parts of the U.S. are actually lower than they are in some regions of Canada, which has spurred Canadian investment in sawmills in the U.S. south, said Duncan Davies, CEO of Vancouver-based Interfor. The U.S. is not able to produce enough lumber to meet domestic demand, and higher prices will ultimately affects U.S. consumers, he said.
“For us, it’s a negative effect on our Canadian business, but the real loser in all of this is the U.S. home builder and the U.S. consumer,” Davies said.