News Story

Monday, April 3, 2006

(Re)building boom; Softwood lumber imports climb steadily amid shifting trade patterns, recovery from hurricanes

By JANET PLUME AND LAURA L. MYERS

For decades, Canadian exports have accounted for the lion's share of U.S. softwood lumber imports. But the charges and countercharges that have marked the trading partners' lumber relationship in recent years have forced the U.S. to look elsewhere. The result: While imports from Canada continue to rise, the growth isn't keeping pace with that of other leading softwood lumber-producing countries.

Overall, U.S. imports of softwood lumber, including plywood, continued their steady growth in 2005, rising 6 percent to top 23 billion board feet. The growth is a positive trend, considering the changing land base in the U.S. Southeast. Georgia-Pacific and Boise Cascade relinquished core assets in 2004. Koch Industries, a privately held conglomerate, acquired publicly held Georgia-Pacific. Early in 2005, top U.S. timberland owner International Paper divested itself of some 6 million acres in the Southeast in a move to raise shareholder value.

Retail prices for wood-based construction materials began to erode last year amid forecasts that the nation's residential building boom was about to turn. Housing starts in the first eight months of 2005 had slowed to a 5.5 percent growth rate, but remained on pace to top 2 million homes consuming more than 27 billion board feet of lumber for the year.

Then they hit - "they" being hurricanes Katrina and Rita. Most of the central Gulf coast was obliterated, as were thousands of acres of softwood timber crops as far north as Tennessee between Texas and Alabama.

These factors contributed to the 2005 slowdown in the growth of softwood lumber imports. In 2004, the U.S. imported 23.3 billion board feet, a 10 percent increase over 2003.

The slowdown in growth of imports from Canada was even more precipitous. The U.S. imported about 21.6 billion square feet from its northern neighbor last year, up 2.6 percent. All told, those imports fed nearly one-third of the 65 billion board feet the U.S. consumed, according to statistics from U.S. Census Bureau's Office of Foreign Trade Statis-tics. While the remainder of U.S. softwood lumber imports represents a fraction of the market, imports from No. 2 Germany and No. 3 Sweden skyrocketed more than 57 percent and 123 percent, respectively. Conversely, U.S. imports from Brazil plummeted nearly one-third to some 300 million square feet.

"Lumber and lumber product imports have fallen off more than 50 percent in the last three or four months," said Bruce Schuck, president of Tampa-based JBS Shipping, agent for Oceanic Bulk Carriers Ltd., a multipurpose vessel owner-operator with service between South America and the Gulf. "We're forced to look for alternative cargo. We're still loading forest products, but the volume is a minimum 50 percent falloff."

High interest rates and a stronger real have combined to make Brazilian softwood lumber less competitive than softwood lumber from Europe.

While Brazil's softwood lumber exports were down last year, U.S. Gulf ports didn't feel the impact. That's likely because ports such as Beaumont, Texas; Lake Charles, La.; Mobile, Ala.; and Port Manatee, Fla., have been sharing lumber cargoes that would normally have moved through the Port of Gulfport, Miss. Gulfport lost all its warehouses and transit sheds when it suffered a direct hit from Hurricane Katrina on Aug. 29.

"We're seeing a very definitive, systematic trend upward" in forest products overall, said James Lyons, executive director at the Alabama State Port Authority. "Out of Latin America, we're seeing fence boards and lower grades that are structurally strong."

Hurricanes Katrina and Rita caused such devastation to the central Gulf that it may take decades to rebuild. An estimated 19 billion board feet of timber - nearly the volume of softwood lumber imported from Canada last year - was damaged in forests from Texas to Alabama.

The price of framing lumber and panel board soared in the weeks after Katrina roared ashore amid reports that coastal lumber mills had been swept away by the storm surge. Once communications were re-established in the devastated coastal regions, mills were dried out from floodwaters, power was restored and many were back in operation within a month or two. As much as 100 million board feet of lumber awaiting export also was destroyed at Gulf ports such as Pascagoula, Fla., and Gulfport.

From the thousands of acres of ruined forests in Louisiana, Mississippi and Alabama, the damaged timber that can be salvaged is being sent to the mills that have reopened, said Wade Camp, economic services director at the Southern Forest Products Association. Only about 20 to 25 percent of the downed timber is salvageable, according to the Mis-sissippi Institute for Forest Inventory. It must be harvested by June before the timber begins to degrade with mold and rot.

Camp predicts it will take mills 18 months to manufacture plywood and lumber from the salvaged timber. Once the salvaged timber is manufactured and reaches the market, it will be absorbed quickly as the reconstruction effort ramps up. While Hurricane Andrew in 1992 leveled 28,000 homes in South Florida, and four hurricanes in 2004 destroyed 27,500 homes throughout Florida, estimates in New Orleans alone forecast that as many as 160,000 of the city's 200,000 housing units will need to be razed or substantially rebuilt.

Because the extra softwood lumber is expected to be absorbed by the regional rebuilding effort, hurricane damage to the national market is forecast to be minimal, said Bob Daniels, a Mississippi State University forestry professor. "I don't think the (U.S.) market for timber and lumber will be all that impacted," Daniels said. "For the most part, our industry was not hit that badly, but the landowners were hit badly." The National Association of Home Builders research center estimates Louisiana and Mississippi account for about 1 percent of U.S. lumber, engineered wood and structural panel demand in an average year. Even doubling that volume would make little dent in overall supplies, the association said.

For example, rebuilding 160,000 housing units would require 1.9 billion board feet of softwood lumber for framing, the association said. The same is true for the national impact of the damaged crops. "The entire state of Mississippi could go away, which it didn't, and still not impact production. There's a lot of timber down, but there's a lot of timber still standing," Camp said.

Meanwhile, softwood lumber imports from Europe have continued unabated, thanks to the stability of the euro. "We have had a surge in imports from Germany and Sweden, while imports from Latin American producers have fallen, particularly those imports coming from Brazil," said Michele Halickman, a commodity analyst at economic research and consulting firm Global Insight.

The stalemate over Canadian softwood lumber exports to the U.S. doesn't appear near a conclusion despite a new ruling by the World Trade Organization. The U.S. insists that Canada subsidizes its softwood producers, and has slapped a series of duties worth more than $5.2 billion in the past five years on imports of Canadian softwood lumber. Canada disputes the charge and wants the money back. The WTO on March 17 ruled for the second time in favor of Canada, but the U.S. has ignored the initial ruling and could continue to do so. Analysts fear that could lead to a trade war that could include retaliatory measures by Canada.

Canadian lumber exports to the U.S. currently are tagged with an 8.7 percent countervailing duty and anti-dumping duties that average about 2.1 percent. The U.S. in 2002 imposed countervailing and anti-dumping duties totaling 27 percent on softwood lumber, claiming Canadian imports were a threat to domestic lumber production. The percentage was subsequently reduced on two occasions but remains above 10 percent.

The WTO in March reaffirmed previous findings by a North American Free Trade Agreement disputes panel that the subsidy was below 1 percent, which meant the lumber imports were not subject to duties. The U.S. has until April 27 to appeal the decision. The ruling has no effect on anti-dumping duties of 2.1 percent.

Several NAFTA panel decisions have unanimously determined that the U.S. Commerce Department used flawed calculations to conclude that Canadian lumber is subsidized. On Aug. 10, 2005, a NAFTA Extraordinary Challenge Committee upheld an earlier NAFTA ruling that found no threat of injury from Canadian imports. It also stipulated that the U.S. refund the billions of dollars of duties that Canada had paid to date.

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