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Pallet Demand Improves; Hardwood Production Off
By Jeff McBee
Date Posted: 6/25/2002
Hardwood Pallet Market
Hardwood production is scaled way back, but sawmills find the limited production is still outpacing the limited demand in all grades. Industrial material is somewhat of a bright spot for sawmills. Railties, especially crossties, are providing solid to strong activity. Framestock has also been a strong seller this spring.
Log supplies are questionable in several areas of the country. The western portions of the Ohio River Valley and north into the eastern side of the Lake States have been very wet. This time of year, though, the ground quickly recovers from rain -- much quicker than during the winter. The problem has been that rains have been persistent enough to keep loggers out of the woods.
Market conditions are another obstacle for log supplies. Sawmills kept log supplies intentionally thin all winter. The depressed hardwood markets have placed downward pressure on timber prices. This has resulted in fewer timber sales. This has been particularly troublesome in the wet areas, where log supplies remain thin.
Cant supplies are hit-and-miss in different areas. The regions that are struggling with weather concerns have some supply problems. These areas have seen some upward movement in cant pricing. This has largely been the lowest numbers in a market moving up to more typical prices.
Lack of demand for cants has shifted sawmill behavior in some cases. One contact was told by a mill that it had stopped selling cants; the lack of demand forced them to cut for 8/4 material.
Poor pulpwood markets are a concern for later in the summer. The possibility of residual chip shut-offs have been reported for much of the spring.
Pallet demand has displayed more improvement in the past two months than it has for over a year. Activity is well above last year’s levels but not as strong as the late 1990s.
The hot-and-cold trend in pallet demand has eased slightly with improvements in activity. Still, last-minute orders and sporadic activity have become a part of the routine in the pallet business.
Pallet prices remain steady on most orders. Non-GMA pallet prices have endured more price cutting than GMA prices.
Western Pallet Market
The softwood grade market in the West quietly began to fade in early June. The market followed a similar path last year but peaked a month earlier.
The futures market was heading down quickly in mid-June. Futures contracts were holding a $20 premium to cash. Trade volumes were unusually light.
Economy prices held stable despite the travails of the grade market. Economy material remains slightly tight as mill production is not up to par. Economy RL 2x6 supplies remain tight. Many mills are not cutting 2x6, which makes economy downfall more difficult to find.
Trade restrictions are prohibiting most Canadian economy material from crossing the border. Canadian mills have cultivated local markets for their material, selling to cut stock suppliers and other secondary processors.
Quoted prices for economy cover a very wide range, but the overall market is steady. Pricing on both green and dry material followed the same path. Dry material remains easier to move. The dry stock is more desirable for many companies due to HT programs.
Utility material, particularly in short lengths, has resurfaced in the market at prices affordable to the pallet community.
Pallet lumber buyers bought heavy in February and then took an off-market position, buying only for need. Inventory levels grew quite thin while lumber buyers continued to wait out the market.
Prices in the cut stock market were steady with a soft posture in mid-June. Softwood prices slipped in Western Canada, and some cut stock suppliers used the concessions to offer aggressive pricing, hoping to spark some activity.
Pallet demand in the West is steady. Demand has not been bad, but activity has been sluggish enough to leave most pallet providers hungry.
Pallet prices in the West are stable except in southern California, where pricing has been keenly competitive.
Recycled Pallet Market
Recycled pallet demand has improved across the board. The farther east the location, the stronger the activity. Demand has been strong enough in some regions for companies to run overtime. Pallet demand in the recycled market is much better than new pallet demand, which isn’t bad.
The recycled pallet market in the West is strong for the larger players and sluggish for small to medium sized operations. Smaller pallet recycling operations are struggling because of the toll the sluggish market has taken on cash flow.
Core supplies in the East are solid but are not as strong as earlier in the year. Inbound and outbound supplies of pallets are closer to equal volumes due to improvements in demand.
Core prices remain stable after having retreated earlier in the year. The price concessions were readily accepted by distribution centers. This is a clear indication of how robust the over-supply is.
Recycled pallet prices retreated earlier in the year but have a much more stable feel. Some prices are so low they are unhealthy.
(Editor’s 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 (800) 805-0263 and ask for Jeff.)