This year was marked by significant pullback in lumber capacity in the United States and Canada. Some say this is just a reaction to less demand domestically and globally. Companies are reducing supply to meet changing demand levels. Lumber suppliers are also hoping that curtailments and production reductions will lead to price increases.
But others point out that this is creating a potential supply problem if the global, and most importantly, the U.S. economy rebounds significantly in 2025. The Pallet Profile, the only weekly market report for the low-grade lumber and pallet industries, recently wrote, “A common theme continually being expressed throughout the lumber and pallet industry is the concern of a lumber shortage next spring.”
The Profile quoted a pallet manufacturer in the South that stated, “The simple fact is there is not enough production currently to handle any major increase in demand. If there is a spike, mills will raise prices, and it could be significant. At the same time, if there is no surge in demand and if prices do decline, mills will go into full curtailments or could close permanently. Many are already operating on razor-thin margins.”
The curtailments and closures of both hardwood and softwood sawmills in North America is the Story of the Year for the Pallet Enterprise in 2024. This story has the potential to reverberate throughout the next decade as the sawmill network continues to contract and materials move farther away from pallet producers. All you have to do is see the number of auctions in the sector to know that a supply problem could be developing.
Not all closures or curtailments are about the same thing. Some are about mismanagement or global trade policies. Others are about regulations or a failure to automate. Some reflect the ongoing difficulty in finding people to do forest products jobs. A lot of it is tied to demand destruction as consumer appetite changes. This includes everything from going paperless in the office to changes in homeowner desires for decorative hardwoods in some areas of the world.
One of the biggest closures of the year was the announcement in late February 2024 that Allegheny Wood Products, a major hardwood provider in the heart of Appalachia, would shut down all operations. Local news reports in West Virginia called the news abrupt, but the company has been on the market looking for a buyer since last year, according to several sources in the industry. However, the company was not able to find a buyer or adequate financing to continue. Throughout the year a number of the Allegheny facilities were sold and reopened. But others remain closed. Also, the former owner (John W. Crites Jr.) has been charged with criminal offenses involving non-payments of contract loggers and obtaining goods under false pretenses.
West Virginia Metro News reported information that shed more light on why the company closed. It quoted Crites’ attorney Isaac Sponaugle as stating, “The bank forced Allegheny Wood Products to shut down. The bank declared a default and froze its operating accounts. For valid reasons, people are angry. Yet, a company not paying bills after a bank seizes its money doesn’t rise to the level of a criminal case. This is a civil matter.”
The finances of sawmills may become a bigger issue as lumber prices and demand remain depressed. Most sawmills require a large amount of financing to cover log purchases and expenses. Over the next year, the finances and bank financing will remain a major concern for sawmills. That’s why it is important to pay those suppliers well to keep the wood flowing when you need it.
Allegheny Forest Products wasn’t the only company making news this year when it came to closures or curtailments. Tom Inman, the president of the Appalachian Hardwood Manufacturers, Inc. (AHMI) recently commented, “More than a dozen other sawmill and kiln operations have closed this year. Most of these were sold at auction, and the buildings are repurposed. Many Appalachian mills are running at reduced levels, which means production may end the year at less than 5.5 billion board feet.”
For both the hardwood and softwood sectors, it seemed like every week another sawmill was closing or curtailing production. This is somewhat expected around the holiday period. But the supply contractions have been taking place all year. If pallet companies are having a tough year, you don’t even want to talk with loggers or sawmills about how tough their time has been over the last few years.
In March, the American Loggers Council (ALC) warned that over 50 forest product mills shut down resulting in over 10,000 jobs lost in the past 15 months. Of course, those numbers have only gone up since the ALC’s warning earlier in the year. The ALC explained, “When mills close, logging companies close, and forest health suffers.”
Sawmills are very hard to operate even in the best market conditions. And many U.S. mills need to modernize to stay competitive. Unfortunately, the current market with depressed prices does not help when it comes to having resources to modernize facilities.
In some regions, local regulations are making harvests more difficult to execute. For example, Hampton Lumber announced in January the closure of its Banks, Oregon facility citing difficulty caused by regulations. In the West, regulations have dramatically reduced available timber for harvesting over the last two decades. By contrast, the softwood market has added capacity in the South over the last ten years even though some recent startup projects have been delayed or discontinued.
For pallet producers, the gloomy sawmill news points to the importance of developing an extensive network of lumber suppliers. Some pallet companies have sought to reduce this supply concern by developing a larger network of supply mills. If you are looking to develop new contacts, the Pallet Enterprise Lumber Pages online directory is a great resource. Check it out at https://palletenterprise.com/maplumberpages/.
Other pallet companies have reduced their market exposure by developing more vertical integration and internal sawing capabilities. Recyclers have responded in similar ways by looking to improve recycled lumber reclamation activities.
Some companies have bought lumber just to improve stockpiles and to maintain relationships with suppliers. What is clear is that the low-grade lumber supply chain is lean, and if the economy roars back in 2025, the price escalations could be mean.
For more information on the pallet and low-grade lumber industries, check out the Pallet Profile at www.palletprofile.com or call our market analyst, Rick Henretty, at (804) 550-0323, extension 105.
