Sportin’ Wood

It would appear that the “minor” issue surrounding wood-flooring imports from China is starting to gain some media attention of late.  In a WSJ article titled, Flooring Duties Splinter Firms , James R. Hagerty explains:

Also opposing the duties is Lumber Liquidators Inc., a U.S. chain of flooring stores. The company said at a trade-commission hearing in November that certain types of Chinese flooring are among its most popular products and that U.S. manufacturers had failed to “adapt to the changing market trends.”

Importers would be in a tough spot if duties were imposed, said William Perry, a lawyer representing some of them. That’s because such levies can be adjusted by the federal government annually, and new duty rates are applied retroactively. As a result, importers don’t know how much they would have to pay when they agree to bring in Chinese products.

We find it intriguing (to say the least) that certain firms that are strongly opposing duties claim that Chinese MLWF imports are a minor percentage of sales yet, they have hired an army of attorneys to defend this small business segment and stated above, “certain types of Chinese flooring are among their most popular products.”

More recently, Tom Barkley of the WSJ, notified readers that the U.S. Plans to Impose Duties on Chinese Flooring:

The Commerce Department set preliminary duty rates of as much as 27.01% on the “multi-layered” flooring imports. The department is still reviewing the dumping charges, with an announcement expected in mid-May.

It is worth noting that, research we’ve reviewed suggests that over the last four years, 80% of all cases filed against China have resulted in a duty of some kind.  Countervailing Duties have averaged 53% in these cases, so the 27% duty on multi-layered flooring is roughly half of that average.  Importantly, Antidumping Charges have averaged a much larger 120% in these cases.  Even assuming that multi-layered wood flooring is charged half of the average, the total cost increase for Chinese imports would be nearly 90% higher.  As we discussed in our initial report, Got Wood, duties this high would put low-cost distributors in trouble as other countries (i.e. Indonesia and Malaysia) have only a fraction of China’s capacity.

In the meantime, the housing market is not waiting for an ITC determination as recent data points to accelerating declines.  We are not alone in our expectation for further weakness.  Robert Shiller recently said as much in the NY Times, noting the unrest in the Middle East, a large backlog of foreclosed houses, the uncertain future of the mortgage holding companies Fannie Mae and Freddie Mac and proposals to reduce the mortgage tax deduction, saw “a substantial risk” of declines of “15 percent, 20 percent, 25 percent.”

The numbers don’t lie.  Take a look at the most recent data we’ve collected this week:

Existing home sales slipped more than expected in February, falling 9.6% to a seasonally adjusted annual rate of 4.88 million. The housing market is, inescapably, weak.

Despite near record affordability, existing home sales continue their decline while housing inventory rose 3.5%, an 8.6 month supply at the current price, up from 7.5 months in January.

New home sales fell more than expected to a record low. February sales were 16.9% below the revised January rate and 28.0% below last year’s estimate.  Months of supply increased to 8.9 in February from 7.4 months in January.  This is very high as “normal” levels are less than six months supply.


Dept of Commerce Preliminary Finding of CVD


Disclosure: At the time of publication, the author was short Lumber Liquidators  (LL), although positions may change at any time.