Western Price Spikes
Over the last several months, we’ve seen a string of aggressive price increases in western industrial softwood. This upward pressure first became apparent in October of last year. October of 2016 was an especially important time, because it was one year after the Softwood Lumber Agreement (SLA) initially expired. The SLA was a trade deal between the United States and Canada that regulated softwood imports. When the SLA expired, there was a year-long period where legal action was barred, preventing the American side from legally pursuing a trade dispute until October of last year.
When this period expired, the market started going through changes. Several western pallet producers noted that the supply of industrial spruce pine fir (SPF) coming from Canada into the United States began to let off almost immediately. The supply of SPF to the western United States continued to tighten from October all the way to late January/early February. And today, the supply of SPF to the West continues to be tight.
SPF supply shortages were driven by the uncertainty surrounding the absence of a trade deal. Many were concerned about the possibility that retroactive countervailing duties could be placed on lumber sold during this period. Many contacts in the West pointed to this possibility as a major reason why suppliers in Canada cut off most of the material going into the United States and increased sales to China. The specter of duties has made China a more attractive market than the United States. Most industry experts admit that the U.S. sawmills at current production need Canadian material to fully supply the U.S. market. And this is particularly true out in the West.
It is important to remember that SPF isn’t the only material common in the West; there’s also Doug fir. The sale of Doug fir inside the United States isn’t directly covered by the SLA. However, shortly after the supply of SPF started to fall off, the supply of Doug fir also began to tighten. It’s common during the colder months for supplies of industrial softwood to tighten due to wintery weather affecting logging. Late last year, the shortage of Canadian SPF left domestic Doug fir to pick up the slack. Due to the increased demand, supplies of Doug fir diminished at a rate that was faster than normal for that time of year. Today, Doug fir supply in the West is still very tight, which becomes more concerning as the western pallet market approaches its busy season related to agricultural production. Even if supplies of Doug fir improve as we approach warmer months, the market may still feel off kilter until there’s some resolution in a new softwood deal.
There has been quite a bit of upward pressure on new pallet pricing in the western pallet market. This upward pressure has been to cover increased raw material cost.
Shifts in the Midwest and Eastern Markets
In the hardwood pallet market east of the Rockies, cant supplies are plentiful. This has been the case since around mid-spring of last year. Robust inventories triggered some competition in the cant market and prices started to slide. In the later part of this winter, prices mostly stabilized. There was still some mild downward pressure but with much less urgency.
There have been some areas scattered around the country that have been hit with precipitation, which has hindered logging. Often, though, the surplus in cant inventories is large enough that some tightening in log supply doesn’t matter. There have been some reports from the Mid-Atlantic region that have shown more significant tightening in cant supply.
Western softwoods weren’t the only materials affected by the absence of a softwood deal. Pallet contacts across the upper Midwest who buy SPF from Canada have also noted difficulty finding material to purchase. SPF pricing in these areas has increased quite a bit since October of last year. Southern yellow pine (SYP) has gone through similar trends of upward pressure and tight availability though probably not as urgently as SPF.
Another concern that has arisen is difficult in finding markets for wood waste material. This has resulted from a warm winter with less heat energy needed from biomass, the loss of paper production and the sudden downfall of some pellet operations. Sawmills and large pallet operations are already starting to see this problem. But it has yet to significantly impact many smaller pallet companies. If the trend continues, it could develop into a crisis that impacts even more areas throughout the year.
Pallet demand in the East and Midwest started out the year as a mixed bag. Now that we are a few months into 2017, reports have been more consistently positive. There are still some areas of weak demand, but not enough to tip the scale against the positive.
There was downward pressure on pallet pricing, especially in the hardwood region, driven by competition when cant prices started going down. Now that cant prices are much more stable, pallet prices are also typically stable. Softwood pallet prices are higher nationwide.
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