Hardwood Pallet Market
Weather was a large factor in price and availability of low-grade hardwood all summer. Persistent rains pelted the Eastern U.S. most of the summer. Logging conditions have been understandably poor. The weather improved in August for some areas. Most areas east of the Rockies benefited from almost two full weeks of dry weather, but the cooperative weather came to an abrupt halt Labor Day weekend.
Rainy weather has not been the only trouble for the forest products industry. In fact, weather may be the smaller factor when considering the shift of hardwood grade markets.
Hardwood markets are in the midst of a transition that the industry may later view as historical. Some sawmill contacts say that conditions represent a paradigm shift in the industry.
Low-grade hardwood markets are beset with a bevy of new supply problems that are financially related. Large users of higher grade hardwood have been moving production offshore, dampening grade market activity. This makes it difficult for sawmills to find a realistic return on their log investments. The market will be in flux until mills' supply and demand find suitable price levels that the market will bear.
Industrial hardwood demand has provided solid to strong activity all year, and there appears to be no slowdown in any of the industrial markets. Sawmills cannot afford to saw strictly for industrial material, however. The lack of grade demand puts price pressure on sawmills on both buying and selling transactions. Some mills held log prices in place and ran out of logs as a result.
Market conditions and weather have left log and lumber inventories thin in most areas. Pallet lumber buyers got an early start at building winter inventory, with little or no success.
Low-grade hardwood prices were bullish all summer. Prices have leveled off after unprecedented increases. Despite the stability, most contacts feel that it would not take much to push raw material prices up again.
Pallet demand east of the Rockies has been solid. Most hardwood pallet suppliers have experienced modest improvement in activity all year. Demand levels are the best the pallet industry has seen since the economy began to fade in early 2000. Despite the improvement, though, pallet demand remains below seasonal expectations.
Pallet prices have moved up at a pace that pales compared to the increases in the raw material market. As the summer wore on, pallet suppliers found more resolve in raising prices when already thin margins were damaged by increasing raw material costs. Pallet buyers continued to resist, but pallet suppliers were left with no choice.
Western Pallet Market
The spring run in the softwood market did not get started until late summer in the West. Once grade prices began to move, the market made up for lost time, and prices for on grade material soared.
As grade prices rose, mills expected industrial material prices to follow them up. This resulted in a standoff between buyer and seller in the industrial softwood market. As of press-time, mills had encountered strong resistance to higher quoted prices. Quoted prices were about $10 higher, but prices on actual sales held stable.
Forest fires and the threat of forest fire limited logging in some areas and eliminated logging in others. Log supplies grew thin early in September. Small mills were most often affected, with some of the smaller operations shutting down for lack of logs.
Wholesalers who sell into the pallet market were pushed to the sidelines. The mix of buyer apathy and higher quoted prices dulled the already sluggish activity.
Apathy from pallet lumber buyers was fueled by inventory levels that ranged from normal to slightly heavy. Pallet lumber buyers were able to watch the market and participated only when offerings matched needs.
Canadian cut stock suppliers have dealt with difficult conditions throughout 2003. Sluggish demand in the Western pallet industry has dampened cut stock sales dramatically. Seasonal activity helped fuel modest improvement in late summer. Even with the improvement, activity in the cut stock market remained below expectations.
Western pallet suppliers report pallet demand was disappointing over the summer. Activity held steady while staying on par with 2002 levels, which also fell short of modest expectations.
Recycled Pallet Market
Pallet recyclers are enjoying the fruits of the budding economic recovery. Recycled pallet demand has been solid to strong. Recyclers east of the Rockies at times experienced demand that was almost too good. Service was a larger concern than supply. Some of the strength was obviously seasonal, but when coupled with higher demand from regular customers, it has been very good news.
Another factor contributing to the solid activity east of the Rockies was customers converting from new pallets as a result of tight supplies and higher prices in the hardwood pallet market.
Pallet demand in the West has been somewhat sluggish considering the time of year. Still, activity in the recycled pallet market in the West is far stronger than the new pallet market.
Seasonal activity in the West has some of the larger recyclers enjoying strong activity. Some Western recyclers are registering close to record months. However, the overall feel of the Western recycled pallet market is moderate.
The suddenly improving demand in the recycled pallet market has shifted core supplies. Supplies of inbound cores for #1 GMAs are tight in almost every region. Recyclers that have respectable supplies are reporting a decline in availability.
The ratio of inbound core supplies did not register any change recently. The mix of inbound cores of #1 GMAs and #2 GMA remained stable. The supply of inbound #2 cores remains a much larger portion of the mix.
Recycled pallet prices are generally stable. This is actually good news in today's market, where competition seems to keep prices under relentless downward pressure. The latest shift in demand has taken away some of that pressure.
(Editor’s Note:
