US-China Trade/Tariff Update
On Wednesday, January 15th, President Trump and Chinese Vice Premier Liu He signed the long-awaited “Phase 1” Trade Agreement between the United States and China at the White House. As quoted from Forest2Markets’ writer, Travis Durkee: “the hardwood industry was finally granted some long-awaited relief last Wednesday when the United States and China signed “Phase One” of a new trade pact between the world’s two largest economies.
“The two-year agreement commits China to import no less than $200 billion of U.S. goods and services on top of the amounts that it imported in 2017” in four broad categories: manufactured goods, agricultural products, energy products, and US services. Where does the hardwood industry fit in?
“Many hardwood products fall under the “manufactured goods” portion of the agreement, which is slated for a $77.7 billion increase in exports to China (on top of the 2017 baseline) through December 2021. It’s hard to overstate the relief the industry will feel after tariffs of up to 25 percent on exports to China cratered virtually all species of hardwood and diminished the US’ hardwood lumber market share in the country.
“And though certainty for the hardwood industry has been in short supply of late, raw materials are not.
It is worth noting that the Lake States and Northeast regions “maintain deep inventories of high-value hardwoods,” with Growth-To-Removal (GRR) ratios that well-exceed 1.0 (a GRR of 1.0 suggests that more timber volume is grown than is removed) in many areas. Based on this data, it appears US suppliers will have plenty of inventory to meet the welcomed increase in demand from China and other export destinations for decades to come.” (US-China Trade Deal Provides Relief for Hardwood Sector, Forest2Market blog post, Travis Durkee, January 20, 2020, www.forest2market.com)
As mentioned previously, any step toward a de-escalation in tariff assessments/enactments is generally considered as a positive step toward the trade war resolution, and it’s nice to note that there has finally been some positive steps taken in this matter. Of course, now there is the effects that the coronavirus may have not only on the Chinese market demand, but how that will affect global markets as well. As we keep saying, time will tell.
Highlights of the Appalachian Hardwood Lumber Markets – as of February 1, 2020
Recent reports from the Appalachian Region state that 4/4” #1 and 2 Common Ash lumber has stabilized, and “more prices than not are now at or above the published prevailing rates.” Recent kiln-dried 4/4” Common lumber prices have actually ticked up since Christmas. Black cherry prices have remained flat through January, with one sawmill actually reporting that sawing cherry has become profitable again for them because of the decline in cherry timber and log prices. Hickory has dropped a little since the middle of January, as the range of prices reported has widened recently. Hard maple prices have remained fairly steady over the last half of January, with #1 common grade lumber dipping a bit, but lesser quality grades doing better. Soft maple has currently plateaued, with some price weakness being indicated by several mills. Red oak has also remained steady – actually it’s been at its current level since the beginning of November, and some reports say mills have seen a slight “uptick” in prices for 4/4” FAS and #1 Common. Poplar prices have come down slightly again since the middle of January, with varying reasons why across the market territory.
Please see below the most current graphs showing the major hardwood species lumber prices by month, year-to-date, and over a one-year period:
Lumber Monthly Trends – January 3-31, 2020
Lumber Year-to-Date Trends – January 3-31, 2020
Lumber One Year Trends – February 1, 2019 thru January 31, 2020
The benefit of our hardwood resource is that it is diverse in species composition, which helps level out market affects related to the change in demand for any one particular species. As always, we strongly believe that landowners can still benefit from sound, professional advice from foresters who know the local market specifics. Please call any of our foresters if you are interested in selling your timber – you will be glad that you did!