Post Preliminary CVD Lumber Market Update
Lumber Market Loses Steam after CVD Announcement
The lumber market has been somewhat paralyzed since the Counter-Vailing Duty (CVD) was announced on April 24th as the industry tries to analyze just what the decision means. The result has seen the market lose steam over the last few weeks as dealers absorb inventory rather than participate in what they perceive as an artificially overvalued lumber commodities market. Of course, only time will tell if lumber is overvalued at these levels, levels not felt in over four years.
Much of the market run-up prior to the announcement was in anticipation of the duty so the market had already built in some adjustment towards the duty scenarios Canadian mills were expecting. Starting in late January, Contract Lumber’s Framing Lumber Index spiked over 27% to a high of $405.64 on April 21st. Since the Commerce Department’s announcement on April 24th, lumber has reversed course, giving back 7.5% of that gain. The current index sets at $375.05. When the preliminary tariffs were announced at just under 20%, it seems the market relaxed, at least for the interim, with buyers pulling back, hesitant to commit to volume purchases for fear of downside risk. The question becomes – how long can dealers stay off the market coming into the heat of what is anticipated to be a very active building season.
One thing to keep in mind is that this is only round one in this heavy-weight battle. The U.S. Department of Commerce (DOC) is set to announce its preliminary determination in the anti-dumping duty case on June 23rd. If the DOC offers an assenting ruling on that case, it will only add to the 20% CVD on Canadian lumber exports to the U.S. and potentially drive up prices again. Obviously, neither of these preliminary decisions will become final until late this year, with final rulings set for September 6. As in previous cases, delays will most likely postpone clarity until November, and then the exhaustive appeals process begins. Stable markets are built on clarity and consistency, neither of which exists in today’s lumber market. Expect more of the same for the foreseeable future…lumber pricing volatility.