Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
U.S. lumber futures erase tariff gains, hint at housing slowdown
Ole Hansen
Head of Commodity Strategy
Key Points:
U.S. lumber futures are back under pressure after a short-lived tariff-driven rally, and the reversal may be telling a broader story about the health of the housing market. Last month, futures spiked when the U.S. announced a sharp increase in antidumping and countervailing duties on Canadian softwood lumber, more than doubling effective tariff rates. In 2024, Canada accounted for close to one-quarter of U.S. softwood lumber consumption, and the tariff move sparked aggressive pre-buying from wholesalers and builders who scrambled to secure supply before the cost increase filtered through. What followed was a classic case of hoarding-induced overshoot: once the front-loading of demand ended, trading volumes thinned and prices quickly reversed. The first-month contract has now slumped 17.3% from its 1 August peak, paring its year-to-date gain to just 4.5% in the process erasing most of the speculative premium built up around the tariff announcement. At USD 575 per 1,000 board feet, the price trades above support in the USD 550 area which coinsides with the three-year average near USD 540. Speculators added fuel to the latest reversal, after the net position held by 'Managed Money' and 'Other Reportables', reported weekly in the Commitment of Traders Report, flipped from a 2,000-contract net short in early June to a 4,100 net long by early August, only to unwind aggressively as demand failed to follow through. By the latest COT reporting week to 19 August, the net position had swung back into negative territory, reinforcing the scale of the market’s recalibration. Beyond the positioning and tariff effect, broader headwinds are weighing on the sector. Uncertainty about how tariffs will be applied is keeping buyers cautious. At the same time, sticky to rising inflation continues to squeeze household budgets, while the timing of Federal Reserve rate cuts remains unclear. Lower borrowing costs are essential to ease mortgage and refinancing expenses, but until they materialize, homebuyer confidence is subdued. Add in a layer of consumer uncertainty about job security and the broader economy, and the conditions for a sustained housing recovery remain weak. Canadian producers are also under strain. Analysts note that many mills are operating at a loss given weak North American demand and higher costs, a combination that could force supply cuts later in the year. But for now, the market remains oversupplied, and futures have room to drift lower unless demand improves materially.
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