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Market Update: Lumber Inventories Heavy, Demand Mixed in the West
The Western grade softwood market has behaved in very hit-and-miss fashion so far this year, and the grade market has not yet begun its traditional spring upturn.

By Jeff McBee
Date Posted: 4/1/2007

Western Pallet Market

†† The Western grade softwood market has behaved in very hit-and-miss fashion so far this year, and the grade market has not yet begun its traditional spring upturn.

†† The grade market from time to time has displayed some nominal signs of life only to surrender any gains the following week.

†† Sellers on the industrial side of the softwood market have not been as fortunate. The on-again, off-again grade market has worked against them. In late 2006 and early this year, mills reduced production to try to correct over-supply. Since a millís production typically is about 4% economy or less, economy softwood supplies reflect the shift faster than other grades being offered.

†† The grade marketís tendency to flash some potential at a time of year when stronger demand is expected has kept mill production at solid levels. This has kept industrial grades of softwood in abundant supply.

†† Some sellers of industrial stock placed a positive spin on the market, saying they were encouraged by the limited strength of the grade market. This appeared to be more of a case of the seller talking their position despite market conditions. In fact, both buyers and sellers were taking their respective positions, and the time-honored tradition of a stand-off occurred. Buyers have remained squarely in the driverís seat as the supply-demand balance tilted in their favor.

†† Industrial softwood pricing has been very steady despite supply-demand fundamentals that would seem to point the market downward. The main reason there were not any shifts in the industrial side of the softwood market is because the market already has found sellersí resistance levels. The earlier mentioned shutdowns and curtailments helped to curb the over-supply in the industrial softwood market and buoy pricing.

†† Demand still is slightly behind supply. Supply and demand have moved closer to a balance than the market has seen in a while.

†† Supplies of economy 2x4 were low at the start of the year but demand for the product was even lower. Sellers offering economy 2x4 found few willing buyers. These sellers were proven right in their speculation that the tightness in supply was more the result of limited supplies.

†† Economy 2x6 has been readily available and has provided no supply challenges. Some areas reported that economy 2x6 was over-supplied.

†† Economy 2x4 supplies improved throughout February until it was readily available.

†† Industrial softwood prices are holding mainly steady. Some sellers have tried to convince lumber buyers that the market is firming. Even if there was evidence of this, lumber buyers have no reason to approach the market any differently.

†† Pricing remains mainly steady but has held a soft posture since the market leveled out in the fall. Green economy material made some price concessions in early March. This was especially true of short green material, which took a price pounding as availability continued to strengthen. Freight issues keep green material from moving far away from its normal circles, though, which further contributed to the price woes for green economy.

†† Dry material displayed much stronger price stability.

†† Sellers offering economy wrestled with buyer apathy, often reporting that the market had gone eerily silent. The supply-demand imbalance left nearly all economy stock a tough sell.

†† Pallet manufacturers have very large lumber inventories even considering that this is the time of year when they build inventory as a hedge against traditional price increases caused by climbs in the overall softwood market. The large inventories have also been an obstacle for sellers of industrial softwood. Many lumber buyers have inventory levels that are heavier than they would like. Trying to reduce pallet lumber inventories in February is unheard of, but that is the case with some pallet lumber buyers.

†† Winter can often provide log challenges in the alder market. This year is no exception. Logs are not the only challenge facing this sector, however, as the hardwood market continues to adjust to large volume losses created by big customers that moved to leased pallets.

†† The alder market remains uneasy due to these recent developments. There is clearly a tension from some buyers who felt slighted during the tight supply period of the past few years.

†† Pallet demand in the West has been good but not great. The market has been deceptively solid in the Northwest; demand seems to be behaving more in line with traditional seasonal expectations here. Some contacts report that demand does not seem to be strong, but sales have been modestly surprising compared to a year ago at this time. Some contacts report that sales for 2007 exceed levels for 2006.

†† Pallet demand in the rest of the West is displaying mixed trends. The Northwest has solid to strong demand, but California has some problems. Not only is it the traditional slow period in California, but agribusiness Ė especially citrus ó is way off due to a freeze that destroyed a large portion of the citrus crop. Activity from construction-related accounts is improving faster in southern California than northern California.

†† Pallet prices in the West remain steady.

†† (Editorís 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.)

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