Canadian lumber producers brace for second round of softwood lumber duties

Canada's softwood lumber industry is bracing for a second wave of U.S. duties expected to come Monday that could put further pressure on producers, particularly smaller ones, to cut jobs.

The U.S. Department of Commerce announced in April preliminary countervailing duties against five companies ranging between three and 24 per cent, with other producers facing a tariff of 19.88 per cent.

This time, the U.S. is expected to announce preliminary anti-dumping duties with an average rate of around 10 per cent, which would be added on to the previous levy.

Analyst Paul Quinn of RBC Capital Markets believes the U.S. will play hardball and impose high anti-dumping rates in order to push Canada to agree to a deal before negotiations on NAFTA begin in August.

"Anti-dumping (duties) is a way to scare the Canadians and try to force them to get something done," he said from Vancouver.

Canada's share of the U.S. softwood lumber market was 27 per cent in May, down from 31 per cent a year earlier, according to monthly Canadian government reports. That represented a $165-million loss in exports for the month, including $105 million in B.C. and $18 million in Quebec.

Final duty rates have been lower than preliminary tariffs in the past. But Quinn said that could change this time because the U.S. Lumber Coalition is pushing for a tough response to the Canadian government's $867-million financial support for the industry, mainly through loans and loan guarantees.

Federal Natural Resources Minister Jim Carr said Ottawa was "very prudent" in developing the program and wouldn't say if more industry funding will be coming in the wake of the second round of duties.

"We will react to market conditions in the reality of the moment," he said Thursday. "We are committed to ensure that our forestry sector is able to adapt to changing environments."

The ripple effects of the first round of softwood lumber duties are already being felt. Resolute Forest Products (TSX:RFP) has cut shifts at seven sawmills, and there are fears other companies could follow suit.

The Conference Board of Canada has said U.S. softwood lumber duties will cost Canadian producers $1.7 billion a year and result in the reduction of 2,200 jobs.

Resolute spokesman Seth Kursman wouldn't say if the Montreal-based company will pursue another round of layoffs.

"It wouldn't be fair for me to speculate and guess and in doing so create angst among our people and the communities in which we work and live," he said.

Analyst Hamir Patel of CIBC World Markets predicts Resolute will face the highest preliminary anti-dumping duty of the four producers set to receive their own tariffs. All other companies will get a weighted average duty, similar to when the last round of softwood duties were announced.

Countervailing duties target what the U.S. considers unfair subsidies, while anti-dumping tariffs go after the alleged selling of softwood below market value.