Market Update: In a Bloggish Mood... Random Thoughts from the World of Wood (and Nearby)
Market analyst, Jeff McBee, shares a bunch of random thoughts about the current crazy lumber market and the future that lies ahead.
By Jeff McBee
Date Posted: 5/1/2014
Pallet Profile Weekly recently published a white paper/report on the state of low-grade hardwood supplies. The special report examined acute raw material shortages of the past and compared them to the malaise that is currently impacting supplies.
The report shows the differences in market fundamentals that are driving the current tight low-grade hardwood supplies and why the prices are pressing higher at an alarming rate.
It also examines what to expect of low-grade hardwood markets going forward and when we could expect some relief in the marketplace. The report is a powerful tool to help explain to customers the exact factors driving the current low-grade hardwood market.
The best part of the report is that it is free to Pallet Profile subscribers.
Fix Your Pallet Prices
No, I’m not talking about collusion. I’m talking about your current pallet prices. Too many pallet suppliers have broken pallet prices. Some of the increases in low-grade hardwood costs have placed pallet suppliers well behind the price curve. Pallet suppliers in many areas find themselves in a position where availability is the primary concern and the price is a very distant secondary challenge. That mindset is understandable, until it is time to price your pallets. There are some companies who are (wisely) setting the selling price when the product is ready. Others find themselves continuing to fight price resistance. That’s a recipe for disaster. Raising pallet prices is never easy, but if you don’t have them in line with costs in this market, your costs could eat you alive.
And while I’m at it, you need to get out from under the thumb of customers who want ridiculous terms. It’s a very interesting phenomenon from my perspective. There are some companies that will tell me that they have no choice when large customers demand 90 day terms. I understand the mindset. In other cases, I have talked with smaller operators who have similar demands put upon them (sometimes it is the same companies) and they refuse it. I have to marvel from this end of the phone. The smaller guy is so absolutely set on his terms that he refuses when told of 90 day terms and he gets away with it. He tells his fortune 100 company customer, “I’m not a bank.”
The customer then complies. It reminds me of a Wild Kingdom episode I saw when I was a teen. Some Bushmen were hunting with blowguns fashioned out of a reed of some sort. They killed a deer/gazelle and it was barely when a leopard showed up. The Bushmen fearlessly smacked their blowguns on the ground while hollering loudly. It was the ultimate game of chicken and they won. They were obviously outmatched, but it was the leopard who eventually surrendered.
Sometimes it’s all in how you approach it.
Ain’t Recovery (Almost) Great?
There’s a lot to like in the current financial climate, especially for the pallet industry. The good news is that pallet demand is as strong as we have seen since 2006 or before. The bad news is that pallet demand is as strong as we have seen since 2006 or before. Finding enough wood to nail, or enough recyclable pallet cores are both major challenges with no immediate answers on the horizon.
Ain’t Recovery (Almost) Great pt. 2?
While there’s a lot to like in the current financial climate, there are some aspects that are concerning.
The housing market is fairly solid and in some aspects is as strong as we have seen in a while. There are some parts of that trend that aren’t encouraging. First time buyers are way below historic averages. Investment buyers are still too big of a portion of the market (for my taste). Inventories of homes are up and so are “distressed” sales.
Still, in the midst of the mixed reports, I like our housing market. I don’t love it yet. I’ll begin to love it when it spurs job growth that helps feed it.
Ain’t Recovery (Almost) Great pt. 3?
I like the current state of the economy, but I have my caveats.
The stock market has been slipping lately. A lot of the current slide has been momentum stocks on the NASDAQ. The good news is that the slide doesn’t seem to be a self-feeding correction.
There is a lot of strength in the stock market, but no one seems to be able to say why. Where is this irrational enthusiasm coming from?
Ain’t Recovery (Almost) Great pt. 4?
Okay; this is my last general financial observation. Our economy is growing, but it’s doing so at a slow pace. Europe is in a similar boat, only their economy is being labeled “fragile” by mainstream analysts.
China is cooling. The world’s second largest economy (behind only the U.S.), is pulling back. The pace of the pullback as of press time is – frankly – a little disconcerting.
The “fragile” state of Europe and a cooling of the Chinese economy could prove to be more headwind than the U.S. can take on.
An Escape from the Hardwood Shortage
The hardwood shortage east of the Rockies is beyond acute. It is the worst that the industry has ever seen.
The good news is that softwood (SPF & SYP) is available. The bad news is that it is not cheap. Despite the high prices in the shortage-driven hardwood market, softwood prices are generally higher. So, it’s available, but it is not a cheap alternative.
There are some pockets where green pine has provided some relief in both price and availability. Most of that material seems to be surfacing at vertically integrated pallet mills.
Buyer beware: green pine has its own set of drawbacks. It can be obnoxiously sticky/tacky to the touch. A bigger obstacle is that there is far more sugar in the wood, which is food for mold. It can also do some twisting as it dries. Still, the price is right.
When Will We See Real Relief from the Hardwood Shortage?
There is evidence that establishes a timeline for when we will see relief in the low-grade hardwood market. In fact, we discuss it in the recently published Pallet Profile Weekly “Market Madness” report on the state of low-grade hardwood supplies. Did I mention that the report is free to Pallet Profile subscribers?
If you don’t already subscribe, you should because it is the best way to keep up-to-date in this crazy market. Call 800-805-0263 for a free trial.
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.
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