A mill fire in British Columbia sent lumber prices higher, adding to a number of supply side developments that moved the Random Lengths Framing Lumber Composite Price (FLCP) to $316 on Friday. This price, if maintained, would trigger provisions in the US-Canadian Softwood Lumber Agreement (SLA) reducing tariffs on imports of Canadian lumber. An average price above the $315 limit for the period from April 20 to May 11 would result in reduced tariffs for the month of June.
The mill fire, the second this year, coupled with already lean inventories helped push up the FLCP which has climbed steadily from a low of $252 in early November 2011. But the fire, the result of wood dust from the harvesting of beetle killed timber, also renewed focus on the longer term supply implications of the bug kill. One study estimates the British Columbia Interior timber supply could be reduced by one third over the next 20 years.
On the demand side, a slow but improving US housing recovery, combined with slower but still strong growth in China will keep upward pressure on lumber prices.
But some downward pressure on lumber prices, in addition to the possible tariff reductions, could come from Russia’s entry into the World Trade Organization. Membership is expected to increase competitiveness through reduced tariffs on Russian lumber exports, increasing exports to China and European markets. Theoretically, this would ease price pressures in the US market, but procedural issues of implementation could delay this effect.