Softwood lumber agreement with U.S. expected to expire in October

Canada’s lumber producers say they expect the softwood lumber agreement with the United States will be allowed to expire in October.

As the clock ticks away to the deadline, West Fraser Timber noted in its first-quarter earnings report that the likelihood of an extension or replacement agreement becomes increasingly remote.

Industry analyst agree, with one describing the chances of a renewal this year as “slim to none.”

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An expiry would trigger a one-year standstill period when both countries are barred from taking unilateral action.

Paul Quinn of RBC Capital Markets says every lumber producer that attended a conference last week believed the agreement would be left to expire, paving the way for negotiations ahead of the October 2016 “real deadline.”

Canada’s forestry sector favours a renewal because of the certainty it provides and the likelihood that rising prices will eliminate all duties and export taxes, Quinn said.

However, the U.S. is believed to want changes and is waiting for the U.S. Lumber Coalition, which opposed the agreement, to release its position.

Quinn says Canada’s bargaining position would strengthen in about a year if prices rise and the Canadian dollar strengthens to reduce the competitive advantage of Canadian producers.

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Meanwhile, softwood lumber duties are expected to increase to their highest level in nearly two years this summer.

After more than a year of no duties for western producers, a five per cent charge is being levied in April and May based on falling prices caused by the impact of poor weather in the first quarter. A further price decrease is expected to raise the duty to 10 per cent in June and possibly July.

Producers in Saskatchewan, Manitoba, Ontario and Quebec face a 2.5 per cent levy that is expect to rise.

However, a surge in U.S. housing starts is expected to boost demand and prices in the third quarter, eliminating export duties.