With Americans buying more new homes than at any time since the recession, the cost of the wood used to build them is getting a lot more expensive. Lumber prices are off to their biggest rally in more than a decade, touching a 19-month high last week as demand increased from builders. But almost a third of all wood used in U.S. homes comes from the world’s top exporter, Canada, where surging shipments have compounded a trade dispute and increased the chances of import tariffs that may top 30 percent. That spells trouble for producers including West Fraser Timber Co. and Canfor Corp. While the two countries have until October to iron out a new softwood-lumber trade agreement to replace one that expired last year, imports are flooding into the U.S., intensifying opposition from American producers who say their northern neighbors get unfair subsidies. Canadian exports accounted for most of the increased demand from U.S. builders this year through April, Bloomberg Intelligence estimates. “Canada is shipping so aggressively into the U.S., you’re going to stoke the fears there,” said Kevin Mason, managing director of ERA Forest Products Research, a Vancouver-based financial research company. With demand for lumber slowing in Asia, Canada stepped up sales to its southern neighbor, by far its biggest customer. Exports surged to 7.45 billion board feet of lumber in the first half of the year, up 20 percent from the same period a year earlier, government trade data show. Housing Boom Growth has been fueled by a rebound in the U.S. housing market. Purchases of new single-family homes rose in June to the highest level in more than eight years, to a 592,000 annualized rate, Commerce Department data show. Construction rose 4.8 percent to a 1.19 million annualized rate, the most since February. A typical home uses about 16,000 board feet of lumber and more than 14,000 board feet of related wood products, including plywood. Lumber futures on the Chicago Mercantile Exchange are up 28 percent since the end of December, the biggest gain to start a year since 2004. On July 18, prices touched $338.70 per 1,000 board feet, the highest since December 2014. But American producers aren’t getting much of the new business. Of the 1.9 billion board feet of increased demand this year through April, 1.6 billion came from Canada, Joshua Zaret, a Bloomberg Intelligence analyst, said in a July 15 report. The discrepancy probably will harden the U.S. position in negotiations, he said. New Agreement In a letter last week to U.S. Trade Representative Michael Froman, 25 Senators said any new agreement with Canada on lumber must include strong protections for domestic jobs, noting the adverse impact of subsidized supplies over decades. David MacNaughton, Canada’s ambassador to the U.S., said the pact must be flexible and that “inflated rhetoric” will complicate efforts to find a solution. Disputes by the countries over lumber have escalated before. From 2001 to 2006, the U.S. imposed import duties of 27 percent to 29 percent the last time the two countries failed to agree on trade terms, according to ERA Forest Products Research. Since the previous agreement expired in October, Canada was permitted to ship lumber tariff-free for a year to allow time for talks on a new deal. “There’s a chance a new softwood lumber pact won’t be reached before the one-year moratorium on filing trade cases ends in October,” Zaret said. Trade Tariffs Should tariffs be imposed that are similar to those of a decade ago, that would increase the cost of imported Canadian lumber and limit sales from companies including Vancouver-based West Fraser and Canfor, which may see earnings drop by 5 percent next year, ERA’s Mason estimates. While West Fraser and Canfor have more exposure in the Canadian market than competitors including Interfor Corp., the rally in lumber prices may help offset the impact of higher U.S. tariffs and give shares a boost, according to a July 7 report from Raymond James. “If you’re paying a tariff obviously that will impact your bottom line,” said Susan Yurkovich, president of the Vancouver-based Council of Forest Industries, which represents wood producers. “We remain hopeful we can find a resolution before we move into a situation where we have litigation. If litigation is filed by the U.S., we’ll work to defend our interests.” S&P Outlook Canfor Chief Executive Officer Don Kayne said Wednesday on a conference call that he was “encouraged they’re still speaking, but there’s a lot of ground to cover.” Standard & Poor’s Global Ratings cut its outlook on West Fraser to stable from positive in June, citing uncertain progress on a new trade deal that may “constrain the company’s profitability and credit measures over the next couple of years.” West Fraser said in a July 22 statement that it is prepared for a breakdown in U.S. talks. The company supports the Canadian government’s attempt to come up with a reasonable settlement and is encouraged that the country remains unwilling to settle at any cost, Chief Executive Officer Ted Seraphim said on an earnings call. “No deal is better than a bad deal,” Seraphim said.