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Letter from Ed: Mission Critical Staying on Top of Lumber Market Changes
Pallet Enterprise founder explores the recent changes in the low-grade lumber market and unveils an exciting new feature for the Pallet Profile covering softwood lumber markets in the East.

By Edward C. Brindley
Date Posted: 12/1/2013

                The biggest cost factor for pallet operations has been and remains the raw materials, primarily lumber, used to produce or repair pallets. And with the market as competitive as ever in terms of the finished pallet price, you have to stay on top of price fluctuations and market changes if you want to avoid getting stuck with lumber that is unnecessarily expensive.

                It used to be that most companies only had to keep track of one major market. In the West, the market focused on softwoods mostly while the East was dominated by hardwoods. A few years ago that started to change as the prices of softwood lumber tanked due to the housing market collapse. Companies, in the South, Midwest and East began to buy more softwood than ever as it became comparatively much cheaper than hardwood. With the resurgence of the housing market over the last year, the move to softwood has declined although some companies made a shift that has seemed to stick.

                Softwood has taken some of the hardwood market and may keep it due to plentiful supply, the ability to procure lumber that is already ISPM-15 compliant, and the growth of block pallets, which tend to specify softwood lumber. For a number of years, subscribers to our weekly pallet market report, the Pallet Profile, have been asking for softwood numbers and market information. And the time has come for us to add onto the report to meet this demand. Although the report has always carried information on the softwood market for the West, it has only offered occasional comments on the softwood market east of the Rockies. But that is all getting ready to change.

                Starting in early 2014, the Pallet Profile will carry info for the East on softwood lumber markets providing readers all the information they need in one report. This is unprecedented because most reports are hardwood or softwood specific whereas we will offer up-to-date information on both.

                You will notice starting on page 24 that we have run a sample version of the Pallet Profile in this issue of the Enterprise. We are doing that because many readers may have never seen the Profile. But I believe it is the most important publication that we develop. If you want to stay on top of things, it should be your first read – even before the Enterprise. Take a look at the sample and call us at 804-550-0323 to sign up for a free trial subscription. This sample provides the latest market information and price numbers plus two recent stories.

                We not only want to add new subscribers, but we also need more companies to share information because that will only improve the value of the market information we offer. You can do that by signing up to receive monthly survey forms that only take a few minutes to complete. By providing your information, you will ensure that your voice is heard in your market. This is particularly important if customers use changes in the Profile to alter pallet prices. Your information will be kept confidential and will not be shared with any other third party.  This means your individual information will never be identifiable to the general public. To sign up to participate, call Jeff McBee at 804-550-0323, fill out the form on page 30 or email jeff@palletenterprise.com and write “Market Data Network” in the subject line.

                Ok, let’s look at some specific changes in the lumber market that are important to note. This year our average hardwood cant composite price increased over $25 per thousand board feet since January. Hardwood pallet lumber was characteristically fairly stable last year, but it started its $25 climb this spring and accelerated in late summer and throughout this fall. A variety of issues have impacted the availability of hardwood cants. Wet weather has varied across the country although it has unquestionably restricted lumber supplies.

                While grade hardwood sales and production have stayed below typical historical performances, low-grade hardwood markets which focus on the same parts of a log, including the center of the log, have been the big bright spot to hardwood sawmills the last few years. Competitors to the pallet industry for low grade hardwoods include crossties, board road, mining timber, flooring, and a wide variety of options. All of these competitors tend to pay more for their hardwoods than the pallet industry does.

                Virtually all of these markets continue to buy heavily, applying continuing pressure on the prices for pallet hardwoods. While hardwood prices have not quite hit the panic mode in many regions, most hardwood pallet manufacturers are more than concerned about the availability of lumber throughout the coming winter and spring seasons. The industry is having a difficult time laying in any winter and spring inventories, so pallet manufacturers are examining all of their raw material options. Heavy competition in the market place continues today and shows no signs of letting up.

                As mentioned earlier, softwood took some of the pallet market in the East over the last few years. Traditionally, hardwoods have been sought for pallets due to their strength characteristics, but scientific analysis has demonstrated that softwoods properly used can replace hardwoods for many pallet applications.

                Southern Yellow Pine (SYP) pallets have become more common over time thanks to the increase in block pallets that generally are made from softwood material. CHEP and PECO pallets are both made from SYP as is the newer 9BLOC design that is being encouraged by many people in the white-wood pallet industry.

                We have carried low-grade economy softwood prices on the West Coast since our Pallet Profile report started in 1977. Just like higher grade softwoods, low-grade softwood prices vary quite a bit over time. In particular, the last few years lower grades of western softwood lumber have developed a different attitude from their historical trends.

                The Pacific Rim, in particular China, have purchased large quantities of low grade North American lumber from the West. The Chinese buying habits are enough different from established buying patterns that it has changed the direction and depth of pricing patterns so that comparisons to the past can be somewhat difficult.

                In 2012 random length Spruce Pine Fir (SPF) prices on the West Coast moved from about $170 per thousand

in January 2012 to $240 in the spring of 2012. In December 2012 prices jumped up to about $255 and then by May 2013 it soared to about $340. During the summer months of 2013 SPF prices dropped dramatically to about $225 and then rose again by November to $265.

                Softwood price variations are more of a market function than they are a supply issue. Sawing practices in softwood and hardwood are dramatically different. The nature of the softwood sawmilling industry makes its sawing practices vary dramatically. So, both supplies and prices can fluctuate wildly at times.

                That’s why the Profile has become a trusted, third-party source of information to help you better track and monitor lumber market changes. It also contains some of the best reporting on industry issues available today. Check out the free sample on page 24. Call us at 804/550-0323 and talk to either Jeff McBee or myself for details about how to get these reports on a regular basis.

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