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Market Update: In a Bloggish Mood -- Random Thoughts From the World of Wood
Market anaylsyt Jeff McBee describes some the more recent market activity in a blog format.

By Jeff McBee
Date Posted: 9/1/2010

A Real Housing Market Would Be NiceÖ Real Nice

††††††††††† The forest products industry really needs a housing market. It will be a very long time before housing starts hit 2.2 million starts annually again. Eventually that will happen due to population growth, but itís likely to be years. We donít necessarily need anything that robust, but we certainly need a stronger housing market than we have now.

††††††††††† A large forest products companyís economists forecast a one-million starts market for 2010. That didnít materialize. We may not hit half of that number. One-million starts would be modest compared to recent years, but would be a very nice boost for all sectors of the forest products market.

††††††††††† Softwood mills would have more viable grade markets. Framing for home construction is very important to softwood mills. This would allow higher production levels and more consistency to production schedules. Industrial softwood buyers Ė including the softwood oriented portion of the pallet industry Ė could use some consistency.

††††††††††† Hardwood mills would benefit similarly. Flooring and cabinetry markets among others would be bolstered. The grade market benefit would bring production levels up and solve a lot of market-based low-grade hardwood shortage problems.

††††††††††† The forest products infrastructure would also benefit. Loggers and truckers would benefit too.

††††††††††† The pallet industry would probably benefit more than the rest of the forest products industry. Most of our manufacturing base has moved offshore. Housing easily represents the largest portion of our manufacturing sector now.

††††††††††† Bricks, blocks, mortar, ceramic tile, shingles, tar-paper, light fixtures, plumbing fixtures, windows, doors are among the home construction products that move on pallets.

††††††††††† The lawns of newly constructed homes also account for a lot of pallets.

††††††††††† Then new home owners fuel better activity in the retail sector while furnishing the home.

††††††††††† The real winner in all of this is the economy, in that at every stage of the above mentioned process, money is circulating.

Can Anyone Get a Read on Any of This?

††††††††††† Even if you pay very careful attention to all of the economic news, it never seems to add up. It used to be fairly easy to get a read on the economy just by paying close attention to the economic news. Even during recessions, you could see whether you were trending downward, riding in the trough, or climbing out.

††††††††††† The current quagmire seems directionless and the press has taken a liking to the term ďslow, uneven recovery.Ē Iím fine with a slow, uneven recovery as long as that is what it is.

††††††††††† There are tons of mixed signals everywhere you look or listen. Economic growth has slowed, but it is still growth. Slow growth seems to be the forecast for the remainder of the year. August automotive sales are expected to decline from July but remain better than in the first half of the year. Retailers made more money, but like most other businesses, they have gone through an intense cycle of belt-tightening to get there.

††††††††††† Possibly the most disheartening piece of news from the mixed news file is the jobless claims rose to a nine-month high right at press-time. Some of the more astute economists were pointing out that a lot of the spring/early-summer job creation was a mirage fostered by Census jobs that would evaporate, and even this bit of news was met with Ė you guessed it Ė mixed emotions. Summer volatility is not unusual in the job market. The current softness still finds the job market well ahead of a year ago.

Itís a Small World After All

††††††††††† The world is shrinking, economically speaking. The more global the economy becomes the more other countriesí economies affect ours. Much like the U.S., the trends are mixed. Japan is looking at investing into more stimulus programs, while Germany is weighing in with the strongest growth in 20 years.

Pallet Prices (What is wrong with you guys?)

††††††††††† Iím talking to the hardwood pallet guys now. Thereís nothing wrong with you. Itís your competition, right? Or is it the perceived competition.

††††††††††† Low-grade hardwood prices have soared in 2010, pallet prices have made a few moves, but there is no way that pallet prices have kept up.

††††††††††† There are companies out there that are only now looking at their first increase of 2010. Even now, the increases are modest at best. Some of their competitors are asking for the third time.

††††††††††† The Pallet Profile Weekly mentioned 4% as the typical increase in pricing in the current market. It drew response from readers. Some certainly going for their first increase and were looking to get a much higher raise.

††††††††††† Pallet price resistance is very real. Customers have intensely resisted price moves Ė the larger the customer, the larger the fight. Pallet manufacturers who have displayed the strongest resolve have been successful in attaining increases.

††††††††††† The pallet price boogeyman is hard at work. Pallet lumber buyers are struggling to keep enough wood on the yard for daily operation. Yet, when a large customer threatens to shop their business, too often the pallet manufacturer relents.

††††††††††† The problem and the threat are very real. Some large prime customer could switch vendors, but would another pallet manufacturer risk dropping lesser customers to take on the prime business? Itís not likely. Low-grade hardwood supplies are so limited that pallet operations running at 80% of capacity know that they canít take on any more business without finding more wood.

††††††††††† (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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