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30 PalletCentral • September-October 2019 his has been a tumultuous and difficult year for the North American hardwood lumber industry. Sawmill operators are facing the most challenging set of market circumstances since the Great Recession. In fact, many say circumstances are more challenging now than during those dark days. The U.S. exports of hardwood lumber to China slid 17% in 2018 and plunged another 40% year-to-date through July 2019. This precipitous drop in exports to China has created a large vacuum in grade lumber markets. How large? Exports to China are on pace to be 491 million board feet (MMBF) lower in 2019 than just two years ago. No other market is capable of filling that void. Therefore, grade lumber prices have fallen dramatically. Some items have lost 20%, 30%, or even 40% of their value in less than 15 months. This all happened so quickly that sawmills – which purchase raw materials as much as two years in advance – could not respond fast enough. Almost overnight, profits turned to losses. Mills have reduced production, altered species and product emphasis, and have taken various other steps to try and right the ship, but most are still taking on water. How have these circumstances affected hardwood production? How have they impacted supply and the prices pallet and con- tainer manufacturers pay for hardwood raw materials? How could they influence future availability? This article will address these and other questions. Shifting to Industrials There are two market groups for sawn hardwoods in North America – grade lumber markets and industrial markets. The latter includes pallet lumber and cants, railroad ties, board road, and crane mats. The aforementioned contraction in grade lumber demand prompted mills to shift as much production as possible to the industrial side. Falling grade lumber prices also made financial returns for sawing industrial products increasingly attractive compared to grade lumber. All told, the industrial group's share of the total U.S. hardwood marketplace rose from 52.5% in 2017 to 54.1% in 2018. That equated to 171 MMBF of additional supply for industrial markets in 2018. That bump in volume narrowed but did not fully close the gap between supply and demand; pallet and container manufacturers, tie treating plants, and other industrial markets were still low on hardwood raw materials in early 2019. The industrial group's share of the hardwood marketplace has advanced even faster in 2019, climbing to 58.0%. That's an additional 320 MMBF of industrial supply compared to the 2017 baseline and on top of the 171 MMBF increase in 2018. Tie treaters have welcomed additional receipts this year but remain chronically short of crossties. However, supply/demand balances have gradually improved for several other industrial items, including pallet lumber and cants. Hardwood Raw Material Availability Increasing But Industry Highly Vulnerable to Contraction By Hardwood Market Report SUPPLY T

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