PPI Indicates Softwood Lumber Prices are Still Rising

Last month, softwood lumber prices rose again, likely in response to the ongoing trade disagreement between the U.S. and Canada. The 2.2 percent rise was recorded in the latest release of the Producer Price Index (PPI) provided by the Bureau of Labor Statistics [PDF].

(Source: kindfolk/Unsplash)The National Association of Home Builders’ Eye on Housing reports that softwood lumber — along with oriented strand board (OSB), which saw a 3.3 percent rise — has been leading building material price gains in every month except April, when gypsum prices rose by 5.1 percent.

This price hike brings the price index to its highest level since September 2004, at which time the U.S. and Canada were similarly unbound by a type of softwood lumber agreement, the previous installment (SLA 1996) having expired in 2001.

Previous softwood lumber agreements [PDF], in addition to a 1986 Memorandum of Understanding, were intended to resolve a series of disputes regarding the sale of Canadian lumber into the U.S. at below-market rates. These lower prices, provided for by subsidies from their provincial governments, are said to give Canadian mills an unfair advantage in the U.S.

Since the 2004 price spike, the PPI had experienced decreasing levels until 2009, when prices began to rise again. This five-year decrease was encompassed by the most recent softwood lumber agreement (SLA 2006), which lasted from 2006 to 2015. Prices began to rise more sharply again in 2016 when a yearlong grace period following SLA 2006 expired.

The May 2017 price hike brings the PPI to its highest level since September 2004. (Source Federal Reserve Bank of St. Louis/U.S. Bureau of Labor Statistics)

Since 2015 when Canada declined to renew the softwood lumber agreement, the two countries have been unable to come to a satisfactory resolution. It is this stalemate that has left the housing industry reeling in recent months.

ConstructionDive reports that since October, “Lumber dealers and builders have been bracing for the U.S. government to begin placing duties on Canadian lumber imports to balance the impact of the subsidies.”

These preparations were justified on April 24, 2017, when the U.S. Department of Commerce announced preliminary countervailing duties (CVDs) against Canadian producers, intended to range from 3 to 24 percent. Antidumping Duties (ADs) are expected any day now, after missing a predicted announcement date of June 23, 2017.

While there is some speculation that it could take up to six months before U.S. home builders “feel the full weight of the new, preliminary tariffs,” the National Association of Home Builders (NAHB) has already spoken out against them. In a statement, NAHB Chairman Granger MacDonald said that they will “ultimately do nothing to resolve issues causing the U.S.-Canadian lumber trade dispute but will negatively harm American consumers and housing affordability.”

The U.S. Lumber Coalition — an influential body within the Committee Overseeing Action for Lumber International Trade Investigations or Negotiations (COALITION) that petitioned for the CVDs — vehemently disagrees. Still, the price of softwood lumber climbs.