Softwood lumber duties increased this month (the “all other” rate is going from ~8% to ~14.5%), but the scale of duty-rate increases expected in August 2025 is already causing some major concern. Conversations with industry contacts suggest that the “all other” rate could be 25–30%, while certain mandatory respondents could see combined rates touching 40%! We do not expect prices to have recovered to the point where producers can survive these duties (nor can the Canadian, or any offshore, market absorb the billions of board feet of incremental supply that would have gone to the U.S.). Thus, more Canadian mill closures are anticipated through 2025.
In response to faltering demand and weak prices, several lumber producers outlined plans to throttle back on production in second half of 2024. Interfor will reduce its lumber production by between 280MMbf and 350MMbf from August through December, while West Fraser has reduced guidance for 2024 SYP production to between 2.5Bbf and 2.7Bbf, down from a range of 2.7–2.9Bbf previously. Weyerhaeuser will reduce lumber output by between 5% and 10%, while Canfor announced that it will take 150‒200MMbf of downtime in Q3, with roughly 60–65% of that happening in BC.
Given significant sawmill downtime taken in various producing regions year-to-date, there have been some noteworthy shifts in the supply dynamics of North American lumber. Looking first at Canadian production trends, the BC Interior—traditionally the heartbeat of the country’s forest products industry—has been overtaken by Quebec (at least for now) in terms of lumber output. Through the first five months of the year, Quebec has produced 2.65Bbf of lumber versus the Interior’s 2.63Bbf. Combined with 312MMbf of lumber production ytd from the ever-dwindling BC Coast region, the province of BC still retains top billing; nevertheless, the downturn in lumber output from BC has been quite stunning over the past five or six years. In 2018, the BC Interior produced over 11Bbf of lumber compared to a little more than 6Bbf in QC. Since then, production from QC has slipped modestly (to 5.8Bbf on an LTM basis), while BC Interior production has fallen off a cliff, slumping to just 6.2Bbf (LTM basis).
Another noteworthy development has been the stagnation of supply growth from the U.S. South, where market downtime in response to feeble SYP prices appears to be offsetting billions of dollars spent on capacity-expansion efforts. After holding unchanged year-over-year at ~22Bbf in 2023, lumber production in the South remained flat through the first four months of 2024. Given still-weak SYP prices and producers’ plans to ratchet back SYP output in the second half of 2024, we expect U.S. South lumber production to actually decline y/y in 2024—its first meaningful y/y supply contraction since 2009.
Finally, we have been a little surprised to see European lumber imports remaining at historically elevated levels. On an LTM basis, Euro imports sit at ~1.75Bbf, down from a peak of close to 2.25Bbf. Despite miserable North American lumber prices, European shipments jumped to ~174MMbf in June, their second-highest monthly total year-to-date.