The US timber market could face short-term challenges to ramp up production, despite an executive order aimed at boosting local output, owing to a lack of capacity within the country.
Prospects of tariffs on goods from Mexico and Canada have also caused uncertainty in the market, even though their implementation was postponed by another month to April.
US president Donald Trump signed an executive order last week to facilitate bolstering domestic timber production. The order cited the US' abundance of timber resources and that the softwood lumber industry has the capacity to supply 95pc of the country's overall softwood consumption in 2024.
But even if a significant volume of timber becomes available, there is currently insufficient milling capacity to process all the wood that the US needs, according to market sources. The prospect of a significant shrink in federal staff working in forestry-related agencies also raised concerns over the capability to implement new regulation.
There remain concerns from potential headwinds the biomass segment — which is only a small part of the forestry industry's downstream — might face from US tariffs.
The same executive order also required an investigation to determine what impacts imports of timber, lumber and derivative products have on national security to evaluate whether tariffs or export controls are needed.
These could be in addition to previously announced tariffs against goods from Canada and Mexico. The US imposed a 10pc tariff on energy from Canada and a 25pc tariff on all imports from Mexico starting on 4 March, but two days later delayed most of those tariffs until 2 April.
Most of the impact on biomass from trade barriers would be indirect because of the impact tariffs would have on raw material costs and availability. Many market participants anticipate higher costs of wood products imported from Canada in general, which would in turn increase costs of wood residues that feed into wood pellet production.
The overall market consensus is that Canadian sawmills will not reduce lumber prices to compensate US customers for the tariffs, which could see US customers buying elsewhere. Should the US buy less from Canada going forward, this is expected to result in curtailed sawmill production in the latter. And if cuts are at a significant scale, sawmills could close or go into insolvency, which would in turn impact the Canadian pulp and paper sector too, a market source said.
Already this week there have been Canadian shipments into the US, despite tariffs being implemented for a few days, and all orders were "quoted as duty-separate", another market source said.
The "North American tariffs have the potential to seriously disrupt our industry's complex cross-border supply chains", the American Forest and Paper Association (AF&PA) president and chief executive Heidi Brock said on 4 March, before the tariffs were delayed by another month.
Pulp and paper mills are "strategically" located across the US, owing to the many stages of manufacturing that take place on both sides of the border.
And certain raw material inputs must be sourced from Canada owing to specific fibre quality demands and transportation efficiencies, Brock added.
The AF&PA "strongly encourages" Canada and Mexico — as key trading partners — to continue addressing concerns raised by the US government, she said.
