Will 2019 Be Better or Different than Last Year? Weather and Trade Uncertainty Create Concerns in Hardwood Sector
Pallet lumber analyst, Rick Henretty, explains what happened in 2018 and how you need to be prepared in 2019.
By Rick Henretty
Date Posted: 4/5/2019
There is no doubt that 2018 was indeed a roller-coaster year in the lumber and pallet industries. Many records were set. Unfortunately, not all of them were good records, and the effects are still being felt as we move into 2019.
Some have called what’s happened over the past year in the pallet business the “perfect storm.” Rainfall amounts across the United States set records from the Midwest to the deep South and up the Atlantic Coast.
Polar vortexes dropped deep freezes from the plains as far south as some gulf states. Fires, as well as record amounts of wet weather, also had devastating effects in the West, and the trade war with China disrupted lumber exports for many mills.
As a result, hardwood lumber prices were hitting record highs by the end of 2018 and continue to trend upward into the new year. Given all of these factors in one year, it’s no wonder that the past 12 months have been some of the most stressful on record for those in the pallet industry.
The last time “polar vortex” was as big a buzz word was in the winter of 2013-2014. One of the coldest arctic blasts in over 20 years blanketed much of the country east of the Rockies. That is until this past winter, and polar vortex reared its ugly head again, with temperatures in some Midwest states hitting temperatures of -32 degrees with wind chills of -60! When temperatures hit this low, sawmills and pallet manufacturing come to a halt. Machinery can’t operate and most plants have very little heating ability to combat these temperatures and keep employees warm.
Combining all of these factors over the last 12 months or so has resulted in hardwood log availability hitting all-time lows and cant prices hitting record highs.
With very limited hardwood supply, overall lumber inventories for a majority of manufacturers have been dangerously low and aren’t expected to build to comfortable levels, especially with many mills remaining on reduced production, or in some cases, closed. This is especially concerning as we approach the spring season when agriculture season kicks in and many retail businesses increase shipping.
One pallet and mat producer in the East commented, “With the recent weather activity playing such a huge factor and causing low log inventory in every region of the U.S., it’s getting really hard to see an end in sight.”
But perhaps it’s not all just weather and trade related issues that have caused headaches for the pallet industry. Some experts have said that the economic atmosphere improved fairly significantly in 2018. As domestic sales grew so did pallet demand. Leaner supply chains meant more customers were purchasing pallet inventory just as they needed it. Many contacts noted that sales over the past year were up over the previous year, putting a higher demand on pallet producers. The real problem lies in getting the material needed to keep up with the pace.
Quite a number of pallet manufacturers have been forced to convert their customers over to softwood as a result of continued strong demand and low hardwood lumber availability. More mills that typically have been large hardwood producers have made the necessary changes to cut more pine as the hardwood supply continues to diminish. In some instances, pallet manufacturers are taking whatever is available to make pallets, including a surge in recycled lumber and re-manufactured pallets. As one contact in the North stated, “I’ll take whatever I can get to make pallets and be able to keep my customers happy!”
In the hardwood region, the two major drivers are weather and Chinese demand. And it can be hard to predict how those both will shake out this year. If weather conditions improve and mills start pumping out lumber at the same time that Chinese demand remains flat, you could see a very tight market loosen up pretty quickly. Thus, you don’t want to build huge inventories and get stuck with some very expensive cants or lumber. At the same time, you need enough supply to keep customers happy.
One strategy is to be more proactive this year to work with customers to predict demand and ensure proper inventory. Don’t just take orders as they come in, work with customers to analyze their needs so that you can be ready based on historic demand levels as well as current customer conditions and sales approaches.
For many in the industry it has never more important to stay informed and on top of what is happening not only in one’s local market but also what is taking place across the country and around the globe. From trade issues with China, to weather, to economic uncertainty and political craziness, as one manufacturer in the South shared, “The only way to stay ahead of this insane game is to stay very well informed.”
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