March 4, 2008 / 8:11 PM / 10 years ago

Lumber ruling seen good for Canada but bad for U.S.

CHICAGO (Reuters) - Lumber prices fell sharply in the Chicago market on Tuesday on ideas a split decision in a United States-Canadian lumber dispute favors Canada and may keep Canadian wood flowing across the border.

“It is somewhat of a win for the Canadian guys,” said Paul Quinn, a paper and forest products analyst with Salman Partners in Vancouver, British Columbia.

On Tuesday, the London (England) Court of International Arbitration ruled that the western Canadian provinces of British Columbia and Alberta did not violate terms of a 2006 lumber trade deal between the two countries, as the United States had alleged. However, the court ruled the eastern provinces of Ontario and Quebec did violate terms of the deal.

“The two provinces that are shipping the most amount of lumber across (to United States) have the least amount of anything happening to them from this ruling,” said Ashley Boeckholt, lumber analyst with Bloch Lumber. “And if you look at the eastern side, Quebec and those areas, they haven’t shipped across their allocated amount anyway and so they are not going to get penalized either.”

At the Chicago Mercantile Exchange, the March lumber contract, which is not bound by the $10 daily trading limit, fell $10.10 to $206.40 per thousand board feet, its lowest-ever close. The May contract closed down the $10 daily limit at $234.00.

“I think they were looking for more of a win by the U.S. It was a dead split,” Curt Cunningham, president of Pacific Futures Trading, said of the price reaction in Chicago.

While Canada appeared to be the winner on Tuesday, Quinn warned the United States still has options to impede shipments. He speculated the United States could cancel the 2006 lumber trade deal after giving six months notice, which could set the stage for Washington to file anti-dumping charges against Canada.

LUMBER MARKET STILL IN TROUBLE

Tuesday’s decision is not expected to greatly help the lumber industry, which has been hurt by overproduction, a drop in sales due to the collapse in the U.S. housing market and a strong Canadian dollar relative to the U.S. dollar.

“I think it will be taken as a nonevent,” Quinn said of the ruling’s impact on struggling lumber companies. “They are still losing money. The U.S. housing market is still collapsed and we still are overproducing.”

In late February, Canadian lumber producers West Fraser Timber Co. and Canfor Corp. both reported losses for their fiscal fourth-quarters.

Cash lumber is trading at about $200 per thousand board feet, down from about $250 a year ago.

“Anybody who I have talked to in the industry said they have never seen prices at this level,” said Quinn.

Additional reporting by Jerry Biezk; Editing by Christian Wiessner

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