Weyerhauser is praising the preliminary 20 percent tariff on softwood lumber imports from Canada, announced by the US Department of Commerce last week, but the timber giant still clings to hope that negotiators will be able reach an agreement that goes one step further.
The 20 percent tariff is meant to address complaints from American producers that Canadian lumber is unfairly subsidized, as the majority of Canadian timberlands are owned by provincial governments that lease land to private companies and set timber prices.
“We appreciate the action the US government has taken to address the unfair trade practices that are harming US lumber producers,” said chief financial officer Russell Hagen, speaking on the timberland REIT’s Q1 earnings call on Friday.
However, Weyerhaeuser believes the preliminary 20 percent tariff does not go far enough to address the disparity, and executives noted that the ideal solution is actually a renegotiation of the expired 2006 Softwood Lumber Agreement (SLA).
The SLA subjected Canadian lumber exports to charges and set quota limitations on shipments when US softwood product prices fell below a specified level, but it expired in October 2015. Formal negotiations are currently on hold pending confirmation of US trade representative nominee Robert Lighthizer.
“We look forward to resuming formal negotiations and are hopeful we will be able to reach a quota-based agreement,” Hagen said.
In November, Weyerhaeuser was part of the US Lumber Coalition that submitted a petition asking the Department of Commerce to impose additional anti-dumping duties on Canadian softwood lumber that it said was being sold in the US below market value. But Weyerhaeuser executives on Friday’s call declined to specify by how much they would like to see the government elevate the 20 percent tariff to factor that in.
While about 20 percent of Weyerhaeuser’s overall production is located in Canada, just one-third or so of that timber is exported to the US. Hagen estimated that the new tariff imposed on Canada would cost Weyerhaeuser about $6 million per quarter, but the benefits of the action on the firm’s US operations would likely far outweigh these costs.
Kevin Bates, vice president of timberland investment at Olympic Resource Management, told Agri Investor that the 20 percent tariff announced last week was in line with market expectations. Bates said that its introduction will serve to remove uncertainty and likely lead to an increase in lumber production in the Pacific Northwest region where his firm operates.
He noted that lumber production in the region slowed over recent years as producers braced for the impact of increased imports of Canadian lumber upon the expiration of the SLA, but that the new tariff will help reverse that trend.
“As we work our way through this, the expectation is that we will see more lumber production in the US because that Canadian lumber will get more expensive,” he said.
Weyerhaeuser reported net earnings of $157 million for Q1, a decrease from the $551 million in net Q4 earnings that had been largely attributed to proceeds from the $2.2 billion sale of its cellulose fibers pulp mills to International Paper.