Phaunos, the London-listed closed ended fund investing in timber and timberland, has said it expects to benefit from the anti-subsidy tariffs imposed by US president Donald Trump on imports of Canadian timber products.
The trade dispute has simmered between the US and Canada for many years, driven by differences in the way fees are applied by landowners: in Canada most trees are grown on so-called Crown land, which belongs to the state, whereas in the US trees are grown on private land. The tariffs announced by Trump’s administration range from 3% to 24.1%. Previously, trade was adjusted in line with the 2006 Softwood Lumber Agreement, which restricted the amount of sawn timber that could be exported from Canada to the US. Some $5bn worth of lumber trade is affected, which is close to a third of the estimated value of the US market.
Phaunos said prices for lumber (timber products) has been rising in the US in recent months, as Canadian exporters have priced in the rising tariffs. The Phaunos Timber fund does not own timber or timber processing assets in Canada, and said it therefore stands to benefit, according to comments from Marek Guizot, investment manager at Stafford Timberland, which has managed the Timber fund since July 2014.
This is because the trade spat has provided a higher floor price on timber than was the case in 2016 in the US. Demand is being driven there by ongoing increases in new housing starts. Stafford expects the housing market to maintain growth over the next five years, which will fuel demand for softwood lumber in particular.
“There is definitely scope for domestic US saw timber production to be increased, but we also foresee an increase in imports of lumber to the US from both Europe and Latin America, and more trade missions the like of the US National Association of Home Builders’ visit to Chile last year, as the States seeks to identify alternative, affordable sources of supply,” says Guizot.
Phaunos is invested in assets across three continents, including over 150,000 hectares of sustainable timber plantations. Its key exposure to the US market is through its investment in Aurora Forestal in Uruguay; about half the lumber production from there is exported to the US.
In April this year, the Phaunos Timber fund reported a net profit for its 2016 financial year, reversing losses experienced in 2015, an RNS posting via the London Stock Exchange shows. The fund reported a 12% rise in net asset value over the year, to 55 cents from 49 cents per share, and offered a final dividend to top up its maiden interim dividend already paid.
The net profit was reported as $18.3m, against a £10.5m net loss made in 2015. Asset sales were derived from the $16.8m partial sale of the Boardman Tree Farm, $8.5m from selling shares in Green Resources, and $2.3m from the sale of the standing timber at the Brazilian teak estate Alto Jauru.