With the G20 Summit behind us, we are still not quite sure what lies in front of us regarding our trade negotiations with China. On a good note, the possible escalation in the tariff “war” seems to have been averted, as President Trump and President Xi Jinping of China agreed to resume trade talks after a seven-week breakdown.
According to a recent New York Times article, “the agreement, brokered during more than an hour of discussion between the leaders did not by itself signal any major breakthrough in resolving the fundamental conflict. But it represented a temporary cease-fire to give negotiators another chance to forge a permanent accord governing the vast flow of goods and services between the two nations.”
President Trump said that “we discussed a lot of things, and we’re right back on track. We had a very, very good meeting with China, (and) I would say probably even better than expected, and the negotiations are continuing.” The President “promised to hold off on his threat to slap new 25 percent tariffs on $300 billion in Chinese imports, and he agreed to lift some restrictions on Huawei, the Chinese technology giant at the center of a dispute between the nations. In exchange, he said, China agreed to buy a “tremendous amount” of American food and agricultural products. We will give them a list of things we want them to buy,” he said.” (Peter Baker and Keith Bradsher, Trump and Xi Agree to Restart Trade Talks, Avoiding Escalation in Tariff War, The New York Times Online, June 29, 2019).
Also, recent discussions with US Congressman Tom Reed (R-NY 23rd District) about the affects that these tariffs are having on the wood products industry were interesting; Congressman Reed feels that if Congress can pass the recently-negotiated trade agreements that both Canada and Mexico are happy with, that would strengthen the US position even more so, and may convince China to come to the table and seriously discuss the lowering of the $200+ billion/year trade deficit the US has been faced with for some time.
As of this writing, its unclear if our wood products are included in the “list” of things China has promised to increase their purchasing of, but we will remain attentive to this situation, since a solid trade agreement with China has the possibility of benefiting our hardwood markets again.
As for lumber prices in general, now that we are in the summer months we are seeing some of the typical tailing off of hardwood demand. Ash continues to decline in price, now down by $75/thousand board feet (MBF) since the first of the year. Of interest though is that Vietnam is continuing its interest for this species and has reportedly put a few new sawing facilities on line to facilitate their demand (Hardwood Weekly Review, July 5, 2019). Cherry also continues to drop in general, now down $160/MBF from January 1, 2019; there remains some spotted optimism for cherry demand to increase if/when our trade talks with China improve. By contrast, hard maple is only down about $20/MBF since the beginning of the year, and the few recent down-ticks are primarily attributable to typical seasonal price fluctuations that occur almost every year. Soft maple has been and remains the best performer of the year so far, actually up about $40/MBF since January 1st. Like cherry, red oak lost a lot of ground as well, dropping about $150/MBF; this – also like cherry – is largely due to the decrease in Chinese demand (even though domestic demand from dimension and millwork facilities remains steady).
The two graphs that follow (Lumber Prices by Species and the Index of Selected Species Lumber Prices) demonstrate the swings we are seeing in the hardwood markets that are continuing through this year so far. The top graph will show individual species trends, and the lower graph show the composite index of lumber prices for all 5 species in equal proportion.