Mercer International (AEZ) Risk Analysis

In February 2025, the President of the United States signed executive orders imposing tariffs on Canada and Mexico. Following a temporary pause, these tariffs went into effect in March 2025. While an exemption was subsequently issued for goods compliant with the United States-Mexico-Canada Agreement (USMCA), any products failing to meet the strict rules of origin remain subject to tariffs. Effective August 2025, goods originating from Europe became subject to a new reciprocal tariff regime which established a baseline duty. Furthermore, while a trade agreement reached in November 2025 reduced the rate of duty on goods imported from China, they remain subject to continued tariffs, and specific trade restrictions and retaliatory measures remain in place. Tariffs on goods originating from Europe and Canada (and any new tariffs, retaliatory tariffs or other trade protectionist measures implemented in connection therewith) could have a material adverse impact on the sales of our products to customers in the United States. In 2025, a significant portion of pulp segment revenues from our Canadian pulp mills and approximately 10% of our overall pulp segment revenues were from the United States. The U.S. market accounted for approximately 46% of our lumber revenues and approximately 41% of our lumber sales volumes in 2025. Tariffs, duties and any retaliatory measures could also impact our raw material costs and result in volatility in transportation costs and logistics disruptions and delays. Following the expiration of a softwood lumber trade agreement in 2016, the United States and Canada have renewed a long-standing trade dispute regarding lumber exports from Canada to the United States. In November 2016, a petition was filed by a coalition of U.S. lumber producers to the U.S. Department of Commerce and the U.S. International Trade Commission requesting an investigation into alleged subsidies provided to Canadian lumber producers. Since then, the U.S. Department of Commerce announced various countervailing and anti-dumping duty rates on Canadian softwood lumber and the United States and Canada have engaged in proceedings under the USMCA and through the World Trade Organization. In the second half of 2025, the U.S. Department of Commerce published the final results for its sixth administrative review, setting the countervailing duty at 14.63% and the anti-dumping rate at 20.53%, for combined final duty rates of 35.16% for "all other" Canadian lumber producers. These new rates have been in effect since August 2025, effectively more than doubling the previous rate of 14.40% set by the fifth administrative review. In response, Canada announced that it is challenging the final results of the U.S. Department of Commerce's sixth administrative review under the USMCA. Furthermore, in October 2025, the United States imposed additional tariffs on wood products under a Section 232 review, which is a process under the U.S. Trade Expansion Act of 1962 that authorizes the President of the United States to impose tariffs or other import restrictions if the imports are determined to threaten U.S. national security. This measure resulted in a 10% global tariff on imports of softwood timber and lumber, which is assessed in addition to the anti-dumping and countervailing duties on Canadian softwood lumber. It is uncertain when or if the United States and Canada may settle a new agreement and what terms or restrictions it may contain. Further, additional tariffs, duties or other restrictions may be imposed. Duties or other restrictions imposed on Canadian softwood lumber exports by the United States can negatively impact Canadian sawmill production in our Canadian pulp mills' supply area and result in reduced availability and increased costs for wood chips for our Canadian mills. While we believe this may be partially offset by increased wood chip supply from U.S. sawmills and pulp log availability, we cannot currently predict the effect on our Canadian mills' overall fiber costs. It is also possible that tariffs between the United States and other countries, such as China and the European Union may benefit certain aspects of our business, including potential positive impacts on our Canadian dollar and Euro denominated costs, lowering our fiber costs or making our European Union solid wood products more competitive against those of United States competitors. While we are taking steps to seek to mitigate their potential impact on our business, given these developments are ongoing, their impacts are uncertain and could adversely affect our business, financial condition and results of operations.