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Market Update: Why Can’t the Pallet Market Have Its Cake and Eat It Too? A Look at the Trade-off of Strong Supply for Lackluster Demand
Pallet demand slows east of the Rockies.
By Scott Brindley Jr.
Date Posted: 3/1/2016
January of 2016 started the year off with a period of economic volatility. February followed suit with an overall bearish stock market and oil prices hitting a 13-year low. The pallet industry has not been sheltered from what appears to be some slowing in the overall U.S. economy. Most reports indicate either hit and miss demand or just slowness in general. But while demand may not be as robust as many would like it to be there may also be a silver lining to some short-term depression in the market.
This time of year has been historically bad for keeping consistent supplies of lumber due to winter weather often putting a damper on logging. Going into this year’s winter many were concerned that we would run into those very same issues especially with this year being an El Nino year, which adds a whole new degree of uncertainty into the mix. Those fears were proven partially true; on one hand logging has been heavily affected in many areas. But despite those expected breakdowns in the chain of supply, reports primarily indicate that there is a plentiful supply of low-grade hardwood.
The paradox of low log supply while there is a good supply of lumber points to significantly decreased activity on the low-grade lumber market. So if the American economy and in turn the pallet market were to pick up significantly, the hardwood region would likely see lumber availability at somewhere from tight to critical levels.
Many are taking advantage of this period to stock up on lumber with hopes that the spring will yield a more positive level of demand. Going into winter we heard that lots of pallet manufacturers were affectively running their inventories hand-to-mouth and were not able to keep lumber on the ground very long. The last few months of 2015 were somewhat unusual because overall the ratio of supply to demand was balanced.
But now we’re seeing the balance disappear and tip to one side. We could just as easily over the next few months see the opposite be true in some areas of the country. Many located in southern states are hopeful that if the weather becomes less unruly in the next few months that we’ll see logging activity pick up. But, there’s also some concern of what could happen if weather conditions don’t improve.
The warmer months are typically more active for the pallet market as it is for lumber activity too. If weather doesn’t improve, there’s a good chance that in a few months things could switch. Demand could be strong but logs might be difficult to obtain. So while what we’re seeing may not be the best case scenario, there is some positive potential especially if the U.S. economy picks up and the weather starts to cooperate.
Editor’s Note: The Pallet Profile is the weekly market report for low-grade lumber and pallet sectors in North America. For more detailed analysis, subscribe today by calling 800/805-0263 or visit www.palletprofile.com