Canadian lumber producers are on the verge of getting their first break in the taxes they pay under the Softwood Lumber Agreement since the Canada-U.S. pact came into effect in 2006.
It’s the first concrete signal that the dark days of low lumber prices are on the wane for B.C. sawmillers, said John Allan, president of the B.C. Council of Forest Industries.
Barring a collapse in lumber prices before Friday, an unlikely scenario, the lumber tax for western Canadian sawmills will drop from 15 per cent to 10 per cent beginning May 1.
The tax break marks a small but significant shift in lumber prices for sawmillers, said Allan.
The formula for determining the tax rate is based on the weekly price of lumber. The lower the price, the higher the tax, which is meant to squeeze Canadian lumber out of the U.S. market when prices are low.
If the average price over a four-week period is over a specific threshold — in this case $315 US a thousand board feet — 21 days before the end of the month — in this case April 9 — then the export tax drops from 15 per cent to 10 per cent.
Allan said in an interview Wednesday that the average price was hovering right at $315 for the last three weeks. It jumped to $334 on Wednesday. Traders see that as a sign it will remain high for the remainder of the week.
Allan said the drop in taxes will have a marginal impact on B.C. mills, but it’s welcome just the same.
“It’s the first signal we have seen of a turnaround in the market where that turnaround has had an impact of the Softwood Lumber Agreement,” he said.
“It went into place in October 2006 and here we are in 2010, and we have been at the bottom, with prices below $315 US for all that time.”
The next threshold is $335 US, where the tax would drop to five per cent. If prices rise above $355 US, there is no tax.