Lack of China Markets Could Change The Landscape for Domestic Hardwood Supply

Now that we are 12+ days into the announced tariffs, several things have become apparent. First, many Eastern sawmills have depended on Red Oak log markets in China, which are no longer available. Second, China is a huge market for Red Oak lumber, something mills depend upon since 30-35% of the Eastern hardwood forests are Red Oak. There are some domestic markets, and European markets, although the tariff delay for the EU may limit European markets in the future. Third, Walnut producers will also find sales difficult, as huge volumes of Walnut were shipping to China. Fourth, Cherry markets were largely China centric as well, putting Cherry producers on edge. Finally, we are hearing of large Chinese interest in logs and lumber from Canada, as there are no inbound tariffs on Canadian-sourced hardwood.  Combined, the tariffs and threat of tariffs threaten many Eastern USA sawmills and yards, as these challenges may be much more difficult to overcome than round 1 of the tariffs in 2018.

So what will happen is the million-dollar question? If the tariffs between China and the USA are in place for a long time, the supply landscape could change significantly. Initially producers will turn to lower prices to move lumber, but volumes will be limited by consumer preferences and consumer confidence, which is not exactly sky high. It is likely that Red Oak, Walnut and Cherry prices will soften further. We are already hearing of green mills unable to sell their production and log sales being withdrawn due to lack of interest. With sawn grade lumber estimates running as low as 4 billion board feet, the industry does not need to undergo further contractions. But that is where the market is likely headed unless a resolution is around the corner. 

Alder markets will not be immune to any hit to consumer confidence and volume retrictions for export.  However, the fact that Alder is readily available, is a preferred closed grain hardwood, and has an unmatched flexibility in finishes should help it weather the storm better than other species. Alder demand into domestic distribution and manufacturing is still steady, and we at Cascade have good log inventories which will allow both adequate supplies and the stability in pricing many have grown to appreciate. 

One looming concern is the lack of resiliency in the supply chain for all the products needed for new home building and remodeling. Drawer slides, hinges, and knobs are sourced overseas. Prefinished drawer sides are oftentimes Rubberwood from countries the tariffs are targeting. All these affect the cabinet business. Then the products that go directly into home construction…plumbing fixtures, HVAC units, pipe, fasteners, all are at risk. Add in foam and fabrics for upholstered furniture and one can quickly see how wide of a net the tariffs cast around the hardwood business.

Without question, we are in uncharted waters. Companies that have diverse lumber supply bases should be stress testing availability. What Cascade brings to the table is its ability to reliably supply Alder in volume, in the grades and lengths demanded by the marketplace. With solid log inventories bought well ahead, Cascade will be a supplier buyers can count on though these turbulent times.