This year the industry experienced heavier than normal precipitation in many parts of the eastern two-thirds of the United States. As a result hardwood cants have not been as available throughout the summer months as they often have been in the past.
Until recently, competing industries for hardwood cants, such as board roads for the oil industry and railroad crossties, had not been as active as they had been in the recent past. During the last few months activity has improved in many low-grade hardwood using industries, so in some areas low log decks are finding themselves more common. Many pallet companies report relatively low log levels, but lumber inventories vary from low to fairly good. In particular the Mid-Atlantic region is experiencing tighter hardwood lumber inventory levels, and some other areas are beginning to see a similar pattern.
While the summer months typically bring dry periods and expanding hardwood supplies, this year this pattern has not been as common. Hardwood supplies have not been as heavy as usual, so prices have been fairly stable.
In markets over the last couple of years many pallet companies found low-grade hardwood supplies to be somewhat limited, so they bought low-grade softwood lumber instead. Then SYP and Canadian SPF low-grade prices strengthened to higher levels and became a less attractive option to the pallet industry.
Fortunately, after going significantly higher a couple of years ago, low-grade hardwood prices in general held enough to maintain somewhat of a balance between hardwood and softwood prices in the pallet lumber market. Both low-grade hardwood and softwood prices have exhibited a degree of consistency with some variation. Softwood prices are always pretty flexible, while hardwood is often relatively stable. Right now the markets are both somewhat uncertain about future directions.
It is common for the western softwood market to experience dry periods when wildfires spread throughout the West. Conditions this year precipitated a period of wildfires that emerged in the middle of June and spread quickly through Southern California and British Columbia. In mid-June, British Columbia declared its first state of fire emergency since 2003. During this year’s building season the wildfires have tightened the supply of softwood lumber and put significant upward pressure on lumber prices. The fire season is just getting going, but it has definitely impacted the forestry industry, disrupted mining and caused damage to public utilities.
In July one wholesaler commented, “With rumors of a new softwood lumber agreement possibly changing to a quota system and the raging fires in the Northwest, lumber prices have firmed to much, much higher. Most mills reacted by going off the market to adjust prices.” In mid-July, our pallet contacts, however, generally reported supplies to be very limited and prices firm to stable with attempts to raise prices.
Very little material is currently coming across the border from Canada. Because of all the confusion surrounding duties, many Canadians are reluctant to sell material unless the price is really good.
There is no doubt that softwood prices in the West are firm to going higher. One upper Midwest pallet manufacturer said, “Wildfires in the West, particularly in British Columbia, have shut down a number of mills, including two major West Fraser mills. Softwood lumber has tightened as a result; lower economy grade is moving up in price.” Nobody knows for sure what will happen in the future, but Canadian softwood lumber seems destined to move higher in price in the short to intermediate future.
The West Coast mills are walking a tight rope between the fires in the South and British Columbia and heavier than normal rains in the Northwest. With the agriculture season going strong, the demand for pallets in the West is good. All of this uncertainty in both the hardwood and softwood markets is increasing the demand for recycled pallets and all forms of remanufactured pallets.
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