Issue link: http://palletcentral.uberflip.com/i/1040159
26 PalletCentral • September-October 2018 palletcentral.com have hovered around 1.2 million since early 2016. Lumber and log exports to China have also declined slightly. Forest fires plus the imposition of duties on lumber imported from Canada fueled the surge in western prices. Lumber Prices There is some very positive news for pallet producers in the U.S. South. The price of lumber for Southern Yellow Pine (SYP) is beginning to reflect the large lumber capacity expansion in that region. To see the structural change more clearly, the spread between the price of lumber produced in the U.S. South and the two key western species. Historically, southern mills enjoyed a very large premium over the western species. The U.S. South is a major lumber consuming region for residential and industrial applications. It had to import lumber from the other producing regions to meet the demand. The freight required to ship lumber into the south was reflected in the higher mill prices for producers in the south. Lumber Price Spreads The surge in lumber capacity in the U.S. South has changed everything. Where a southern mill used to get a higher price per board feet relative to western mills, they now are getting prices at, or lower than, a western mill. The U.S. South now has enough lumber capacity to meet the demand. Since capacity will keep ramping up over the next two years, southern lumber prices will continue to be at or below western prices. The lower prices should boost the rate of substitution to softwood lumber away from hardwood lumber. A Few Comments on Economic Outlook Beyond 2019 There is one other challenge emerging for both the housing market and small business—the cost of credit. With economic growth above 3% this year and next year, the Federal Reserve plans to keep boosting short-term rates in 2019. A likely trajectory for interest rates into 2020 is expected. ECONOMY T he next 4-6 quarters should be a very good period for pallet producers. Strong economic growth will continue into 2019. Lumber prices have passed their peak and are unlikely to move much higher unless forest fire disruptions intensify. The biggest issue will be keeping or attracting employees. Finally, the chances of a recession in 2020 are growing. The expansion will be over 10 years old by then as well. Bottom Line Growth