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Market Update: A Fearless Look at the Hardwood Lumber Shortage - Where Are We Headed? When Will It End?
Lumber prices have been going haywire for about seven months. Some contend that the low-grade shortage not only rivals the trends and conditions from 1992-93, but surpasses that shortage.
By Jeff McBee
Date Posted: 7/1/2010
Lumber prices have been going haywire for about seven months. Any time the market becomes volatile, my phone rings – a lot. The current low-grade shortage that is driving prices is one of the more acute shortages that the pallet industry has seen. Some contend that this shortage not only rivals the trends and conditions from 1992-93, but surpasses that shortage.
There are similarities that make the two shortages very similar, but there are also distinct differences that separate the two. The strongest tie between the two is the uncertainty in the market, uncertainty in availability and uncertainty in prices. This uncertainty is what makes my phone ring. Everyone wants a crystal ball view.
Unfortunately, no one has a crystal ball, but we can learn quite a bit from history and current market fundamentals. The main question that everyone wants to ask is “When will this end?” In order to be able to formulate an educated guess of where we are headed, we first need to understand where we have been.
In early spring, many people were thinking that summer weather would correct all that was troubling the low-grade hardwood market. It became painfully evident at press-time that summer weather was doing little to correct the problems. Cant prices were continuing to spike as shortages grew worse late into June.
When I first sat down to write this column, my plan was to lay out a road map of where we have been, in order to be able to point to where we are likely headed. As I approached the end of that overview it became evident that it was about four times the word count normally allotted.
The piece contains quite a bit of valuable information. It provides an overview of the market fundamentals that set up the current shortage. The article details a timeline of how the fundamentals interacted to impact the market. It also shows how Pallet Profile Weekly subscribers were warned of the looming problems while there was an oversupply and low-grade hardwood prices were falling.
The size of the piece however presented a dilemma. It was obviously too large to run here in the Pallet Enterprise, but it will be chocked full of useful information for pallet providers and more importantly – their customers.
The best solution was to take the article and make it into a stand-alone report that is a thorough overview of the current crisis in the hardwood lumber and pallet markets. The report will be offered to Pallet Profile Weekly subscribers to distribute to their customers or potential customers so that they can understand the cost constraints impacting the market right now.
This report examines the changes that the North American forest products industry has gone through in the past few years and their impact on low-grade hardwood markets.
Some of the information provided in the report examines why sawmills were relying heavily upon industrial hardwood markets, as well as sawmill profitability issues. We also look at how conditions in the hardwood grade market were affecting change on a larger scale and their impact on low-grade hardwood availability.
The large scale cutbacks that left hardwood production levels at or near historic lows are also a factor that is discussed in the report.
Learn how these factors affected log costs and availability. You will also see the impact of competition from other sectors of the forest products industry and how they impacted the pallet industry’s low-grade hardwood supply. The report examines the impact from the pulp and paper industry’s aggressive pursuit of fiber.
Find out how flooring impacted raw material supplies and where the greatest impact was felt.
Board-road and crane-mats for domestic oil and gas exploration also became a strong demand product. This report details how this sector impacted 6/4 supplies and how mills adjusted to the stronger demand. You will see how board road and crane mats impacted markets outside of their normal trading range.
We also detail the impact from the rail tie market and how tie buyers were impacted by the same pressures from these competing industries.
This report will show your customers how the pallet industry is at a disadvantage to these other industrial hardwood markets with deeper pockets. It shows the results on raw material prices when they outspend the pallet industry for the limited hardwood supply.
The ongoing low-grade shortage is strictly a supply-side phenomenon brought about by limited production due to economic conditions. We give step-by-step details in timeline fashion that shows how the market has reacted along the way.
See how the limited sawmill production set the stage for the shortage and how the forest products industry was surviving in a very delicate balance.
Most importantly, this report analyzes these factors to show where short-term trends have the market pointed. How will the slow, uneven, jobless recovery impact the pallet industry? Will healthier grade prices bring enough low-grade hardwood to the market to bring balance? This is the type of information that is found in the Pallet Profile Weekly on a week by week basis, but this in-depth look at the current shortage is must-have information.
(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.)