Sometimes markets just don’t make sense. Or more accurately sometimes markets move in a direction different than our expectation based on what we have heard in the press.
If you have customers who are paying attention to the grade hardwood market, they may have come recently knocking on the door wanting to know about their discount.
While it is true that grade hardwood markets have retreated some since China pulled back on its purchases and trade tariffs arose on imports, what is also true is that pallet are not made out of grade lumber.
Unfortunately, many pallet buyers hear from the media about lumber prices moving in a particular direction and assume that their pallet prices should follow that trend. Most of the time the lumber price movements that mainstream press report on deal with higher grades of lumber, often softwood material.
Currently, hardwood grade material has retreated as China has pulled back. China makes up about 25% of the grade lumber production in the United States. So, a slide in Chinese demand does have a ripple effect. Beyond just the tariff situation, the Chinese economy has been slowing, which explains some of reason for decreasing Chinese demand. However, low-grade material makes up only 5% or less of U.S. exports to China. This reality reveals why the significant reductions in Chinese grade demand has had minimal impact on the low-grade hardwood markets.
Naturally, you might expect for the problems in China to mean a glut of material in the United States that drives down all hardwood prices. But that is not the case. Sawmills are reducing capacity to deal with the worsening grade market. Less hardwood is being harvest according to some of our contacts. At the same time, all industrial markets remain strong, and some are growing at a strong clip.
Sawmills prefer to box that log out sooner and make a tie because the railroad industry pays a lot better than other industrial users. As a result, tie production is up in some regions according to our contacts. Some industrial data suggests that tie production is flat for the moment. But that is not what we are hearing from both sawmills and pallet companies.
In general, pallet companies can’t compete with the railroads on price despite significant price increases. Mats, board roads, and bracing and other industrial markets are up too thanks to the hot economy. This has left many low-grade hardwood markets scrambling for material even after the recent grade market slump.
At the same time, hardwood country has experienced one of the worst summers on record for wet weather. Rain and wet conditions reduce overall logging activity. All of these trends have occurred at a time when pallet demand remains robust.
This is a perfect scenario to explain why the grade market may slump while the industrial market continues to roll. It is important for pallet buyers to know the difference and be aware that not all wood is created equal.
One good resource to help educate customers on market movements are the periodic White Papers published by Pallet Profile for subscribers. Unlike the weekly report, these White Papers are designed for subscribers to share with their customers. Our staff is getting ready to put out a two-page White Paper updated for late fall/early winter conditions. This free resource is made available to all Pallet Profile subscribers.
The Pallet Profile is the only lumber market report that is designed specifically for the pallet and low-grade sectors. It is the only report that carries both low-grade hardwood and low-grade softwood information. We are in the process of adding Southern Yellow Pine prices for the southern states.
If you want to find out how you can take advantage of this resource. Call 804-550-0323 and ask for Rick Henretty or email rick@palletprofile.com. Or complete the form online to receive a complimentary copy of the Pallet Profile. Many pallet companies have been enjoying the Pallet Profile for years. You will be glad you joined our readership.
