Hardwood Pallet Market
The raw material scenario east of the
No area can boast about strong inventories. Even in areas that have managed to improve, the gains have been minimal, leaving the supply picture mixed.
Weather has been a major factor throughout the lumber crunch and continues to hinder the pallet industry’s efforts to build any sort of a buffer inventory for winter. Just when an area seems to gain a little relief from wet weather, another storm passes through.
Weather has certainly has not been the only problem. Industrial hardwood markets have enjoyed solid to strong activity, fueling competition for low-grade hardwood that might ordinarily be destined for the pallet market.
The competition from other industrial markets has cooled recently. Flooring lumber buyers have pulled back slightly after filling their yards. Pricing has declined some, but activity in the flooring market is still solid. The railtie market has been strong along with framestock, steel mill blocking and board mats for oil roads.
Paper companies have been aggressive in a number of areas due to weather, which has impacted the paper industry the most in the Northeast and the western
Pulp log bonuses have been common in many areas. Even after the bonuses come off, paper companies are less strict about what they will buy, and loggers continue to haul to them. The result is a lack of logs going to scragg mills and pallet sawmills.
Low-grade hardwood availability remains tight in almost every area. Cooperative weather gave supplies a little boost and brought a small amount of comfort to lumber buyers, but it did not last long. Late November and early December were very wet and erased any comfort levels that were established earlier.
Raw material prices were fairly steady by mid-December, but the market had taken on a decidedly bullish posture.
Pallet demand east of the
Pallet prices increased sharply in the fourth quarter. The upward momentum began to taper off in mid-November. Non-48×40 pallets made better progress than the always competitive 48×40 market.
Western Pallet Market
The Western grade softwood market that skyrocketed in early 2004 fell almost as quickly in October. Random length economy pricing followed the grade market for the upswing and the freefall.
By the time softwood prices began falling in the West, everyone in the pallet industry was well stocked. Many had more wood than they would like in a down market.
The heavy inventories contributed to the rapid decline in the industrial softwood market. Lumber buyers wanted to work through their heavy inventories they bought at higher prices before jumping back into the market.
Suddenly, the surplus of material coupled with the lack of interest made the market seem flooded with industrial grade softwood. Availability of economy material grew so strong that dry prices dropped very close to prices for green economy. This made delivered dry material cheaper than green in many markets because of freight savings.
Canadian pre-cut suppliers in the West got caught in the crossfire of the softwood market and the U.S. dollar falling at the same time. The shift in the exchange rate would make prices go up in a flat market, so this was an extra battle for the pre-cut suppliers. The market fundamentals made it impossible for cut stock to compete in the all-important
Pallet demand was surprisingly solid into mid-December in most Western markets. Pallet demand, although entering what is usually considered the seasonal slow period, has been surprisingly solid in the Northwest. Activity in
Pallet prices in the West held steady even after large concessions in the lumber market. Large higher priced inventories and recent upward pressure in the market have kept pallet prices from becoming overly competitive.
Recycled Pallet Market
The strong economy of the late 90s brought about a difficult core shortage. When the economy slowed down, distribution centers reduced inventories, and the core shortage was over. However, the only market shift was in the economy going cold. All the other factors that led to the core shortage were still in place.
Core supplies were so abundant that recyclers were often overwhelmed by the inbound core stream. It seemed as if the industry would never endure another core shortage.
Then the economy began to return to normal. Recycled pallet demand was strong and getting stronger. Core supplies began to erode quickly. Distribution centers needed to build back inventories that were reduced during the recession; some of them went from being a major supplier to a minor customer. After 10 months of tightening core supplies, the industry finds itself in a quagmire much like the late 90s. Recycled pallet demand is stronger than it was then, and core supplies are tighter.
Core supplies are considerably tighter than they were earlier in the year and seem to grow worse by the week. Each month the situation seems as if it cannot get any worse, but each month the core shortage intensifies.
No region is immune from the core shortage. Many recyclers are working with hand-to-mouth core supplies, and some turn away business because they cannot get enough recyclable cores.
The growing demand for recycled pallets coupled with the shrinking core supplies have placed quite a bit of upward pressure on recycled pallet prices. Recycled pallet prices that were once bullish pressed up in the fourth quarter. Price moves are consistent in every region, which is indicative of the strength of the recycled pallet market. Demand is outstripping supply in most markets.
The stronger demand for recycled pallets and a weaker flow of new pallets entering the recycled pallet stream revived another problem from the past – the declining quality and size of the available pallet pool.
Recycled pallet demand is solid to strong throughout all areas of the country with most recyclers weighing in with strong activity levels.
The strong demand has once again created a pace that is difficult to keep up with, especially considering the current core crunch.
High quality #1s continue to be a high demand-short supply item that is a source of frustration for buyer and seller alike. ‘New life’ or ‘combo’ pallets are in strong demand. Premium or warehouse grade #1s also are in very high demand.
Last-minute orders remain one of the biggest production-side challenges facing recyclers. Contacts report that ‘combo’ pallets and warehouse grade and premium pallets are the biggest portion of the challenging last-minute orders.
(Editor’s Note:
