An eye on the West
China’s lumber purchases over the past seven or eight years have had a profound effect on western softwood markets. This is especially true of industrial softwood, which in recent years has seen crazy price spikes in Chinese lumber purchases which subsequently has led to similarly crazy price spikes in the industrial softwood market.
The proverbial worm has now turned. China’s economic growth has slowed considerably. China’s economic growth – as reported by the government – fell to a six year low. Actual data that U.S. firms are able to track would indicate the worst in eight years. The Chinese government is reporting 7% GDP (which is still a six year low). The trouble with the numbers is that no one trusts China’s numbers.
U.S. firms that track known numbers and trends for China find the 7% number optimistic at best. Citi has China’s growth at 6% at best. Capital Economic reports 4.9%. The China Center Conference Board feels that China is down to 4%. Of all the firms tracking available data, Lumbar Street Research is reporting growth at 3.8%.
Even the most modest numbers would be solid growth in the United States. So the slower numbers aren’t terrible from an economic standpoint. The trouble for the forest products industry here in the United States is that lumber demand from China is a shadow of what it was just a few years ago. Some of that is the reduced demand from China and some is where the stronger dollar has China buying elsewhere.
Water, water everywhere and not a drop to drink.
When I began this column, this was more of a pallet/economy story, but it has quickly bloomed into a story that has gained some occasional national recognition.
California is in its fourth or fifth year of drought conditions (depending upon who is counting). The water shortage began surfacing as a story on the pallet grapevine about a year ago. It continues to be a concern, but most pallet suppliers report that they have yet to be directly impacted. Most point to 2016 as the year where things could get dicey.
California Governor Jerry Brown announced mandatory water restrictions for the first time in the history of the state ordering urban water use to be decreased by 25%. Brown also used the announcement as an opportunity to proclaim, “I can tell you, from California, climate change is not a hoax. We’re dealing with it and it’s damned serious.”
Political posturing aside, the bigger issue has been largely lost on most of
the press. The real story is economic impact. That is why this has remained a relative topic throughout forest products circles.
Cities are complaining that agribusiness is taking too much water. The cities are demanding more be taken from farmers’ allotments. In some cases, farms are selling their water to the cities instead of planting and fighting both the crops and the cities.
There is a certain amount of economic shortsightedness in the demands of the populace that wants a green lawn. There is a “logic” from the cities that says why are we growing almonds, pistachios (or other crops). Why are we losing water on crops that we can import? The line of reasoning continues down the path of “We don’t need these farms sucking up our water for products that can be imported.”
It seems like a fair assumption until you measure that California as a stand-alone economy is the world’s seventh largest economy. What the citizenry’s logic fails to examine is the local economic impact of lost agricultural business.
The bottom line impact is that it costs jobs, reduces tax revenues and is a general drag on the economy. This is where the pallet industry has remained very in tune to the goings on in California’s “water crisis.” There are some media outlets that are pointing to the possibility of the potential economic drag slowing or completely changing California’s housing market.
The best thing that could happen is for California’s higher altitudes to have a few years of large snow pack. The lack of snow pack is where the drought began and where it needs to end.
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 and the Recycle Record, the only newsletters dedicated to serving the pallet industry. For information on subscribing to Pallet Profile Weekly or the Recycle Record, call 800-805-0263 and ask for Jeff.
