Lumber wars

COEUR d’ALENE — With the nine-year-old Softwood Lumber Agreement set to expire today, regional lumber companies are bracing for the worst, but hoping for the best.

    The agreement was reached between the United States and Canadian governments in 2006, to halt a lumber war that had been building between the countries for nearly two decades.

    At issue is the way the Canadian government sells its timber to lumber companies instead of letting market forces dictate the price of timber. U.S. lumber producers considered the practice to be an unfair government subsidy that gives Canadian lumber companies a financial advantage over U.S. producers.

    The U.S.-Canadian Softwood Lumber Agreement established a countervailing duty process that was designed to equalize the price of Canadian lumber that is exported to the United States.

    Now that agreement is set to expire, and while Canada is willing to extend the existing agreement, U.S. lumber producers want to renegotiate what they consider an outdated agreement.

    Meanwhile, some regional lumber producers are bracing for the potential onslaught of cheap Canadian lumber.

Tricon Timber, one of the largest employers in Mineral County, Montana, laid off nearly half its workforce two weeks ago citing the expiration of the of the SLA as the primary reason for the layoffs.

    In press release announcing the layoffs, Tricon said “uncertainty surrounding the impending termination of the Canadian-U.S. Softwood Lumber Agreement” one full shift of the mill’s operations was going to be furloughed on Sept. 28.

    The expiration of the agreement is compounded with a strengthening U.S. dollar and a slowing demand for lumber in China to make the U.S. market very attractive to Canadian producers, according to industry experts.

    “We have been tracking the markets as the expiration date winds down,” said Shawn Church, editor of Random Lengths, a weekly publication focused on the lumber industry. “All of those factors make the U.S. an attractive target for a lot more lumber coming down from Canada.”

    Church said expiration of the SLA removes one more barrier for the Canadian exporters.

    “All of this doesn’t necessarily mean the U.S. will be flooded with Canadian lumber,” he said. “Because the long-term impacts of that could be far more punitive.”

    The agreement includes a one-year window after the expiration of the agreement where neither country can file a countervailing lawsuit.

    Zoltan van Heyningen, executive director of the U.S. Lumber Coalition, said while Canada is amenable to extending the current agreement, his organization wants an updated agreement.

    “This agreement is outdated and needs to be renegotiated,” he said. “We have been calling for it, but so far the process has been rejected by Canada. They are refusing to renegotiate anything.”

    During the one-year-standstill, van Heyningen said his organization hopes to make more progress with Canada. He said they have been working very closely with the U.S. government to get Canada back to the table.

    “There are really only two ways to go,” he said. “Reach a new agreement that works or assert the U.S. trade laws.”

    That would mean filing another countervailing lawsuit to force Canada to renegotiate the agreement.

    “The problem of subsidized Canadian lumber is a very, very real problem,” van Heyningen said.

    Tim Atkinson, vice president of sales for Stimson Lumber, said there are members of several industry groups that are working to sort the agreement out.

    “I don’t really know how all of this is going to affect our company,” he said, adding the lumber industry has changed since the agreement was put in place nine years ago.

    In the 1990s the Canadian lumber industry was flooding the U.S. market with lumber on consignment — allowing big box retailers to pay them after they sold the lumber. The Canadian were producing woodchips for the paper industry, and the lumber was actually a byproduct of that process.

    According to Church, the western Canadian lumber mills are no longer focused on paper production, so that might not be a factor anymore.

    Bob Boeh, with the Idaho Forest Group, said their mills will be able to compete no matter what happens with the agreement.

    “It really affects the stud mills more because the Canadian mills are primarily doing stud production,” he said. “It will affect the dimensional lumber producers to some degree, but not as much as the stud producers.”

    The U.S. Lumber Coalition hopes to get a new agreement within the next two years, van Heyningen said.