Hardwood Pallet Market

Weather has been a major factor in the low hardwood supplies east of the Rockies throughout the past 18 months. Weather conditions have improved slightly in the South, but rain is consistent enough to keep from reaching expected summer levels.

Logging conditions in the North have shifted from poor to critical. Flooding is common across the Northern states. Some mills in the Upper Midwest have experienced down time due to a lack of logs, with some mills being closed for up to three weeks.

The weather has not been the only problem for pallet lumber buyers looking to purchase low-grade hardwood. Competing industrial hardwood markets have become a more significant factor in the chase for material. Rail tie markets are strong. Pulp logs carry a hefty premium. Flooring remains a very strong market, also. These represent more competition for raw material, and all these competing markets can easily afford to outspend the pallet industry.

Pallet demand east of the Rockies is solid to strong. Most pallet suppliers report that activity is better than the industry has seen in nearly five years.

Pallet prices have continued to move higher, but they have not kept pace with rising raw material costs. Every pallet price increase is contested, but resistance is less severe than it was earlier in the lumber supply crunch. Many pallet suppliers figure they have little choice except to increase prices.

Western Pallet Market

When this column last appeared the spring run had begun a little early. No one could have envisioned what was about to happen.

Pallet lumber buyers were waiting for winter price concessions before building inventory, but the concessions never materialized. The surpluses that normally lead to concessions never materialized, either. Pallet suppliers were working with thin lumber inventories, and lumber suddenly was in short supply. Lumber buyers were forced into a market of spiking prices.

Supplies of industrial softwood were virtually nonexistent throughout April and May. This led to dramatic price increases in the industrial softwood market, and they did not stop until prices had nearly doubled. By mid-June prices finally stabilized and had actually peeled back a few dollars.

Canadian cut stock suppliers found the brisk upward move of the random length market provided an opportunity. Conditions of the past two years had made it difficult for sellers of pre-cut. The rally gave cut stock suppliers nearly ideal conditions for pre-cut sales.

Pallet demand in the West was slightly sluggish during the spring with only a few sectors clicking. However, most pallet companies reported demand to be ahead of last year’s numbers. Demand continued to strengthen, and some pallet providers reported strong demand in June.

Pallet prices moved higher quickly along with lumber prices. Resistance was minimal at the beginning of the lumber rally, but purchasers grew weary of the continuous upward pressure on pallet prices. Some contacts reported that price increases slowed demand some during May, but the lull was short-lived.

Recycled Pallet Market

Core supplies tightened dramatically in recent months. In some areas supplies began to tighten as early as February, when the post-holiday influx of cores was not up to expected levels.

The improving economy is largely behind the weaker post-holiday core supply. Distribution centers that are holding larger inventory switch from being major supplier to part-time consumer.

The core supply is being likened to the hand-to-mouth supply situation of the late 1990s. The struggles are nearly universal; every region is reporting core shortages.

Some recyclers who are working Wal-Mart distribution centers with CHEP are among the fortunate few who are not affected by the current shortage. In some cases these recyclers have more cores than they would like.

Inbound core supplies of #1 GMAs are steady. However, the rate of the inbound flow is well below expectations. In many cases inbound flow is not as strong as recycled pallet demand. Core supplies in the West remain healthier than core supplies in the East, but even in the West core supplies are tighter than they were six weeks ago.

Pallet recyclers in the West had healthier inventories when supplies began to tighten. Stronger demand and a weaker flow of new pallets entering the recycled pallet stream have created a double whammy to recycled pallet supplies.

Inbound #2 GMA core supplies have also remained steady. Much like the #1 market, levels of inbound #2s leave much to be desired. Supplies of #2 GMAs remain a dominant portion of the inbound mix, so the core shortage does not seem as acute in this part of the market. The largest impact in this sector: dwindling #2 GMA inventories as the shortage wears on.

Markets that traditionally lean towards #2s report a tightening of #2 supplies. Reported inventory levels of #2s range from normal in markets that do not favor #2s to tight in busy markets that do favor #2s.

Recycled pallet demand has been solid to strong all year east of the Rockies. Demand in the West picked up in April, and now all areas of the country are experiencing mostly strong recycled pallet demand.

Recycled pallet demand is strengthening so much that recyclers are finding it difficult to keep up with, especially with cores in tight supply.

The improved demand is a mix of pallet customers that have switched over from new pallets and increased demand from regular customers. New life or combo pallets are also frequently mentioned as strong demand items.

Seasonal activity in the West is fairly strong. Higher cut stock prices in the West are causing problems for the Western pallet recycling community.

Recycled pallet prices have drifted lower for much of the year despite the strong demand and short supply. The strength of demand in some markets has given pallet prices a bullish posture. Price moves are not extreme but are an indication of demand outstripping supply.

Last-minute orders continue to be a major problem.

Premium or warehouse grade #1s are in high demand. Contacts report that combo pallets and warehouse grade pallets are at the heart of the orders with zero lead time.

(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.)