Tariff on Canadian lumber leads builders to turn to Eurowood

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A US tariff placed on softwood lumber from Canada is not having the desired effect, according to those in the distribution channel for lumber here.
The tariff, imposed by the Bush administration in August, was designed to protect mills in the Southwest US from the dumping of cheaper lumber by the Canadians.
However, the market price of Canadian lumber has stayed at or near pre-tariff levels. And rather than look to domestic product, US distributors instead are importing from other parts of the world.
Canadian imports had grown to a $6 billion industry and accounted for a third of the US market for softwood lumber, which is widely used in home building.
Lobbyists for the home building industry originally claimed that the tariff would increase the cost of building a home in Wisconsin by $1,000 or more.
That price increase has not come to pass.
"New construction is down just slightly, and that has lessened the upward prices on lumber," said Matt Maroney, executive director of the Metropolitan Builders Association.
But perhaps the larger part of the salvation of the homebuilder in southeastern Wisconsin is sitting in warehouses at Jones Island, Milwaukee. Lumber, by the tons, is being imported through the Port of Milwaukee from Germany.
The Norway spruce, destined for sale to contractors and to lumber and home centers here, is only a little more expensive than higher grades of Canadian lumber. And according to industry insiders, the European lumber is more consistent in grain and quality.
"We actually never brought any in until three months ago," said Jeff Cokin, vice president of purchasing at Amerhart LTD, the Green Bay distributor behind the Eurowood imports to Milwaukee. "We are basically learning the ropes and getting used to dealing with the product. … These days, with the Canadian lumber, one mill’s No. 2 and another mill’s No. 2 is just night and day, and we just get so fed up. We get our hands on No. 2 Eurowood, and it is more like the Canadian two-or-better grade. It is not picked over. It is not selected. We can actually tell them what type of wood we are looking for."
Eli Bliffert, who owns the Bliffert Lumber location at 21st Street and Morgan Avenue in Milwaukee, agrees with Cokin that the German product is superior.
"I got a truckload of that material in today," Bliffert said. "I guess it is delivered through the St. Lawrence Seaway through the Port of Milwaukee. It is a little more expensive, but it is very nice-looking material. When you compare it to the Canadian, it has less knots in it – it makes nicer sticks. It is a lot more expensive than low-end construction lumber, but not that much more expensive than high-end construction lumber. It is a nice looking stick, and as long as we can get it, I’ll keep buying it."
According to one wholesaler serving southeastern Wisconsin, the Europeans could go even lower on price.
"I think the Europeans can be as cheap as they want to be now," said Bill Johnson, regional sales manager with Roberts & Dybdahl, Sun Prairie.
Roberts & Dybdahl has been buying Eurowood through importers.
"They need the business – and they have their overhead down so far that they can process the wood for next to nothing," Johnson said.
Better value
But the main price advantage the Europeans have is their positioning strategy, according to Johnson.
"This Eurowood is competing against No. 2 price-wise, but it is really a nicer-looking product," Johnson said. "It is more on the level of home center grade or export grade."
While European imports and increased Canadian output are keeping prices on softwoods down, one sticking point for the industry is cedar. Cedar is also affected by the tariff on Canadian lumber, but alternative sources for old-growth cedar have not been forthcoming.
"They lumped cedar products in with this softwood lumber tariff," Bliffert said. "It really has increased cedar prices and made cedar hard to come by."
"It has affected us primarily in the cedar business," said Rich Smith of Weeks Forest Products, Wauwatosa. "I don’t think they intended to include that in the tariff."
While domestic supplies of white and red cedar are strong, lacking are the wider boards that come from old-growth trees. The shortage of wider boards affects manufacturers of cedar furniture as well as builders that use cedar for shingle, shake, siding and other decorative uses.
"The old-growth cedar that you generally only find in Canada – that is really hard to find," Johnson said. "It is still available, but it is harder to find. There is a lot of cedar cut in the United States, but a lot of it tends to be second-growth."
While consumers and contractors are benefiting from low-cost imports, it may be safe to say the tariff on Canadian lumber is not having the desired effect.
Canadian production of construction-type plywood was up 11.5% in August of 2002 over the same month the previous year. Through August this year, Canadian plywood production totaled 1.6 billion square feet, up 6.5% from the same period of 2001.
Meanwhile, US lumber production in August 2002 was down 8.9% from the total for August 2001, according to the Western Wood Products Association.
Even as the tariff on Canadian softwoods is putting some mills north of the border out of business, other mills are cranking up production and clamping down on prices. As a result, prices on Canadian lumber here are comparable to where they were before the tariff was imposed.
"The price has gone down since the tariff," Cokin said. "We have seen them drop 10% to 30%."
Cokin and others said the tariff has not reduced the supply of Canadian product. In fact, the opposite may be true.
Lumber glut
"I think the Canadians are losing their butts on this," Johnson said. "They are just kind of eating it from what I can see. There is way more product than there is need right now. It is still way over-produced."
Bliffert said he saw an initial price hike on Canadian products, but the increase was washed away by a massive increase in supply and accompanying lower prices.
The real negative impact of the tariff will be in the damage to the trading relationship with Canada, the insiders agreed.
"It is only going to cause retaliation from the Canadians," Bliffert said. "You don’t throw a 27% tariff on your best trading partner. It is not like we are shipping these mill jobs overseas. The timber is here, so you log it here."
"It has been the opposite of what the goal was," Cokin said. "What American mills behind this wanted was for the price of lumber to go up. The Canadians are trying to prove a point, and it is hurting."

Nov. 22, 2002 Small Business Times, Milwaukee

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