January-February 2019

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34 PalletCentral • January-February 2019 uring the early stages of 2018, the U.S. wood pallet and container industry contended with tight supplies and firm to rising prices for softwood raw materials. However, availability subsequently improved, and prices retreated. Hardwood pallet cant and lumber availability was similarly tight through the summer and also improved briefly in the fall, but has steadily deteriorated since. This 2018 theme of general scarcity, brief early fall improve- ment, and significant tightening late in the year played out in almost every other industrial market for hardwoods. Railroad tie treating operations assertively pursued ties throughout the year in an effort to rebuild severely depleted inventories. However, consistently low hardwood log supplies and lumber production stymied rebuilding efforts. Consequently, many treating plants have fewer ties now than at the start of 2018. The board road/mat timber and upholstered furniture sectors also gained momentum in 2018. Energy industry construction and broader infrastructure projects kept board road and mat timber producers relatively busy. Meanwhile, a prolonged sheet stock shortage forced upholstered furniture factories to purchase more solid hardwood framestock. These circumstances further intensified competition for industrial hardwood materials in 2018 and early 2019. Production Falters As noted earlier, hardwood supply disruptions worsened toward the end of 2018, as an unprecedented slump in one key grade lumber market and extremely poor logging conditions forced sawmills to curb production. The China Factor In recent years, China emerged as the largest single market, by far, for U.S. hardwood grade lumber. In 2017, shipments to China surged to a record 1.019 billion board feet. That year, Chinese buyers purchased 54% of all hardwood lumber exported from the U.S. During Q1 2018, reports began to surface of slowing U.S. hardwood lumber consumption by certain Chinese secondary wood products manufacturers. Yet, overall Chinese demand was still trending up into the second quarter. In fact, U.S. exports of hardwood lumber to China set a one-month record of 98.2 million board feet (MMBF) in April. However, the magnitude and extent of the Chinese downturn became increasingly evident in the spring and summer. Exports to China declined for five consecutive months to just 49.2 MMBF in September. Importantly, the contraction in Chinese demand resulted primarily from weakness in certain sectors of the Chinese economy. U.S. threats of tariffs on imported Chinese lumber and wood products, and subsequent Chinese threats of retaliatory tariffs on imported U.S. hardwood lumber and logs exacerbated the slowdown, without question. But they did not cause it. The same is true of threats by the U.S. and China to raise tariffs as high as 25% on March 1, 2019 if the two countries do not reach a trade agreement. As exports to China faltered from May onward, U.S. exporters explored other markets only to find intense competition from other vendors doing the same. It quickly became clear that no other market or combination of markets would come close to absorbing the volume no longer being consumed in China. Amid these increasingly competitive market conditions, lumber prices retreated, especially for items dependent on Chinese business. D Hardwood Production Slows Weak Chinese Demand, Wet Weather Trigger Contraction By Hardwood Market Report MARKETS The wood pallet and container industry will seek out the lowest-cost raw material available. At present, softwood supplies and prices are trending in the industry's favor, and hardwoods are trending in the opposite direction.

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