Phaunos Timber Fund says it thinks it is well positioned to benefit from the Trump administration’s imposition of new anti-subsidy tariffs on Canadian sawtimber. The move escalates a long-running trade dispute between the two countries, which is based on claims by US producers that their Canadian competitors are effectively subsidized. Their argument is that Canadian sawlogs are grown on public land and their pricing reflects an administrative fee, whereas in the US most sawlogs are grown on private land and pricing is market driven.
The new tariffs were announced by Trump at a White House gathering of journalists – shortly before the Commerce Department said it would impose countervailing duties – and range from 3% to 24.1%. Their introduction follows the expiry of the 2006 Softwood Lumber Agreement, which placed restrictions on the volume of sawtimber that Canada could export to the US. The tariffs will impact some $5 billion worth of Canadian softwood lumber imports, representing as much as 31.5% of the total US market, according to US Commerce Secretary, Wilbur Ross.
Lumber prices in the US have risen sharply over recent months, as Canadian suppliers priced in the duties, which they correctly anticipated would be levied retrospectively.
Shareholders in the US$ 300m Phaunos Timber Fund, which owns no forestry or timber processing assets in Canada, appear set to benefit from these events.
Marek Guizot, Investment Manager at Stafford Timberland, which has managed the Phaunos Timber Fund since July 2014, expects to see some volatility in sawtimber prices until the tariff levels are resolved, but says the new “floor price should be above 2016 levels“, and will “benefit those with US exposure.”
US housing starts are steadily increasing following the 2009-2011 crisis and Stafford expect to see the market continue its steady growth over the next five years, fueling the demand for softwood lumber. However, the specialist timber asset management firm believes Canada’s share of the US market will decline as a result of reduced harvesting in its own forests and the imposition of these new tariffs. “There is definitely scope for domestic US sawtimber production to be increased, but we also foresee an increase in imports of lumber to the US from both Europe and Latin America“, says Guizot, “and more trade missions the like of the US National Association of Home Builders’ visit to Chile last year, as the States seeks to identify alternative, affordable sources of supply.”
PTF : Phaunos may benefit from tariffs on Canadian lumber