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Raw Material Tightens in Hardwood Market
Market Update: Raw Material Tightens in Hardwood Market
By Jeff McBee
Date Posted: 3/1/2000
Since that time, raw material availability has tightened somewhat. The only area with strong concerns is the Eastern Seaboard, particularly the Carolinas. Weather has been very uncooperative, starting with flooding from hurricanes and continuing through an unusually heavy dose of winter weather, including heavy snow followed by an ice storm.
Pulp and paper companies along the Eastern Seaboard have continued to employ aggressive purchasing strategies to rebuild inventory levels. This has been particularly bothersome to those running scragg mills in this region.
Log supplies have been lower than normal in some other regions, too. This is particularly true of the Northern states, where weather had been unseasonably warm all the way into early this year. Logging conditions in this section of the country became quite sloppy. Then, winter weather finally arrived, providing the good ground freeze that loggers need in order to work.
Rail tie markets have been slower than in the past several years. Some contacts in this market contend that recent rail company mergers have dramatically reduced track maintenance and repair. Other contacts familiar with the rail tie market, and who normally would have a good idea of the marketís next turn, are puzzled by current conditions.
The remaining industrial forest products markets are enjoying solid to strong activity. Flooring is the strongest, but framestock, board road and blocking all are reporting good activity levels.
Prices for low-grade hardwood material have been steady while entertaining a bullish posture in many areas. Although actual prices have moved slightly, there seems to be far more talk than action in low-grade raw material pricing.
Pallet demand finished the year strongly. The end-of-the-year business spike arrived later than expected and made up for lost time when it arrived. Then, after the holidays, business was slow to resume normal levels. Contacts cited Y2K build-ups as the main reason for the sluggish start to the new year. However, some pallet suppliers already have reported improving activity levels.
Labor continues to be a major problem for the pallet industry.
Pallet suppliers say that customer demands are pulling price and service in different directions. Pallet prices have been steady, but many factors that impact costs have not. This has squeezed narrow profit margins even thinner. At the same time, service demands seem to grow by the day, but customers often are unwilling to pay for additional service. Reported service demands include timing the arrival of shipments, stocking pallets inside, delivering in less than truck-load quantities, bar coding and billing terms.
Low-grade material in the softwood market registered very little change over the past few months. This was a disappointment to those anticipating a seasonal price dip for economy material.
The quota constraints of the U.S.-Canadian softwood lumber agreement continue to keep any volume of Canadian random length material from crossing the border.
Economy lumber supplies had opened the new year somewhat tight. This started to change by the end of the month. Raw material availability began to loosen, but it is difficult to discern how much of this is lack of demand and how much is improved supply. Those on each side of the transaction seem to have very different views about the availability of economy softwood.
Economy 2x4 remains plentiful by almost all accounts. There is certainly more than enough 2x4 short length material to go around. Six-foot and 8-foot 2x4 material is over-abundant, and it is becoming a problem for some sellers because much of the pallet community is not interested in short length material. Even those who are inclined to buy short length stock canít make a steady diet of it. The abundance of short length material is keeping prices for the stock in a soft posture.
The recently announced changes for export wood products destined for China have boosted interest in dry material, but there seems to be more talk than action. It will be difficult to measure how much activity will actually come of this until the market settles in after adapting to the new rules. Several traders have reported more inquiries than action and contend this is just a knee-jerk reaction.
Availability of economy 2x6 seems to be improving slightly. Some of the highest priced 2x6 material edged closer to market prices, closing the trading range slightly. Supplies of economy random length 2x6 remain tight, but 2x6 no longer seems impossible to find.
West Coast cut stock prices remain steady. The price range on pre-cut material is wider than normal. Some cut stock suppliers are looking for prices to move up, but there are still healthy volumes of cut stock going into California at heavy discounts. Contacts in this market report that some suppliers with freight advantages are commanding a lionís share of the market.
Pallet demand on the West Coast is lethargic. This is not unusual for the time of year. Southern agribusiness activity has been somewhat of a disappointment, according to many accounts.
There is usually a noticeable post-holiday influx of pallets into the recycled market after pallets work their way through the system following the Christmas-related peak season. This trend has yet to materialize this year. Some contacts believe the Y2K influence has altered supply chain patterns, but they expect the influx to start shortly.
Recycled pallet demand, although still strong, has tapered off in expected fashion. The last few months of 1999 found pallet recyclers scrambling just to keep up with demand. The overall demand for used pallets is healthy. Contacts report business levels to be comfortably busy. Some contacts already have begun to see the post-holiday rebound in activity.
Labor continues to be a problem for all sectors of the pallet community. This is magnified in the recycled pallet market because of the labor-intensive nature of the business.
Core acquisition costs have stabilized in most markets after displaying upward pressure at the end of the year.
The outbound mix in the recycled market was favoring #2 GMAs, but the trend seems to be shifting slightly. Contacts reporting any shift in pallet demand favoring one grade over another indicated a decline in #2 GMA activity but not necessarily in favor of #1s. This trend has helped improve the availability of #2 pallets in these markets.
(Editorís Note: Jeff McBee is an analyst who researches and writes about the pallet industry and its raw material markets for Pallet Profile Weekly, the only weekly report dedicated to serving the pallet industry. For information on subscribing to Pallet Profile Weekly, call (804) 550-0323 and ask for Jeff.)