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Market Update: Hot-and-Cold Cycle Reaches Fire-and-Ice
Quarterly pallet and lumber market report covering hardwood, softwood and pallet cores.

By Jeff McBee
Date Posted: 6/1/2000

Hardwood Market

An unusually mild, dry winter in most areas of the country has made for excellent logging and high sawmill production all year. Except for New England and the Southeastern Seaboard, the hardwood sector has had strong raw material flow all year.

Too strong by some accounts. The open winter pushed production levels beyond demand for most industrial items. Railroad mergers have brought the tie market almost to a standstill. Other industrial markets, such as flooring, framestock, board road and blocking, have all seen demand falter.

Prices for low-grade hardwood material have been relatively steady. There was some brief upward pressure related to rising fuel costs. The Southeastern Seaboard experienced upward price pressure that was supply-related.

Pallet demand has run into the dreaded hot-and-cold cycle again. The trend currently is more like fire-and-ice. Most contacts reporting strong activity are also reporting short lead times.

The labor shortage seems to grow worse by the day. The combination of last-minute orders along with the labor shortage has been downright toxic.

Pallet suppliers report some slight improvements in pallet prices. Some have passed along the increased fuel costs. Margins have been squeezed thin.

Western Market

The softwood grade market on the West Coast has faltered at the most unexpected time. April is usually when mills are struggling to keep up with demand from the housing market. Instead, mills and traders in the grade market have been concerned with the sluggish start to the building season.

Grade market lumber futures fell dangerously close to level with cash sales, which is highly unusual for spring.

The travails of the grade market are benefitting the pallet community. Pallet manufacturers report utility material, particularly in short lengths, is providing some of the best bargains in the pallet lumber market.

Economy 2x4 has gone from a supply-demand balance to filling the pipeline to surplus in a short amount of time.

Mills and traders report lower prices are being met with the same apathy they have faced most of the year. Despite relatively solid industrial demand, contacts on the selling side of the transaction are beginning to think the market will be slow to rebound until production pulls back.

Many pallet lumber buyers have maintained an off-the-market posture for most of the year. Others have seen inventories grow and are now positioning themselves in the same fashion. This could compound the problems for those attempting to sell pallet material.

Economy 2x6 was almost impossible to find early in the year but has recently been accumulating quickly in the pipeline also. Many pallet suppliers have converted customers to specs that revolve around 4-inch material, and this has lessened the interest in 2x6 stock.

West Coast cut stock prices have been volatile as the cut stock market has taken a beating all year. Most of it has been self-inflicted. The competition has been fierce enough to drive some cut stock mills off the market and some out of business. The latest downturn in the random market has caused some further slippage in cut stock prices.

Pallet demand has improved quite a bit compared to the first quarter but is still not quite up to expectations. The industrial sector in California has come back to life. All indications are that the agribusiness market in central California will be stronger than normal. High-tech accounts have been the strongest sector in the Western market and show no signs of slowing.

Recycled Market

The tight core supply that has challenged the pallet recycling community seems to have eased somewhat. There are still some shortages, but they are not nearly as severe. In areas where the supply has improved, the only common thread shared from region to region is that used pallet demand is no longer white hot. The core supply seems tightest in the Southeast.

In some markets in the South, the availability of #1 pallets is approaching critical levels. Part of the problem is in the inbound mix. This problem is not limited to the South but seems to be the most pronounced in this region. Many areas of the country report the inbound mix of pallets is shifting decidedly toward #2s.

Third-party management and pallet recycling are contributing factors to the decline of the overall quality of the available pallet pool.

Recycled pallet demand is about on par with traditional seasonal expectations. Demand in the South is stronger than in the North. Overall demand is good but falls far short of the frenzied pace that has been the norm the past 18 months. Business is best described as comfortably busy.

The entire pallet community, both new and used, is suffering labor shortages. The problem affects the recycled market more because of the labor-intensive nature of the business. The problem usually intensifies in the summer months when construction jobs attract some labor away from the pallet market.

Core acquisition costs have been generally stable. A few companies managed to trim acquisition costs. These movements were isolated and could hardly be considered trends, but it nevertheless was the second month in a row of declining cores costs.

Recycled pallet prices held rock solid in all regions. Prices for #2 GMA pallets are trending slightly higher. Fuel costs are not impacting recyclers as much as manufacturers of new pallets.

(Editorís Note: Jeff McBee is an analyst who researches and writes about the pallet industry and its raw material markets for Pallet Profile Weekly, the only weekly report dedicated to serving the pallet industry. For information on subscribing to Pallet Profile Weekly, call (800) 805-0263 and ask for Jeff.)

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