Issue link: http://palletcentral.uberflip.com/i/1212207
28 PalletCentral • January-February 2020 palletcentral.com Lynn Michaelis is president of Strategic Economic Analysis, a company which assist business managers in thinking about the future. He was previously a vice president and chief economist for the Weyerhaeuser Company. Lynn may be reached at stratecon@icloud.com or 206.434.8102. markets. With positive employment growth and low-interest rates, household formations should continue to drive the need new housing units higher in the next year. By some estimates, housing starts are falling behind the underlying demand by about 100,000 per year. But constraining factors such as the permitting process in places like California and Washington, plus labor shortages, will keep housing starts moving higher at a modest pace in 2020. Because capacity lags investments that have been made in new lumber capacity, lumber production in the U.S. South will continue to expand in 2020 and 2021. The impact of this big change in lumber capacity in the U.S. South. SYP is now below prices for most of the 2013-18 period and below the other two key lumber prices: D.F. and SPF. Lumber prices Despite curtailments in lumber capacity in Canada because of timber shortages, the overall operating rate for the lumber industry will hover near 85% in 2020-21. Historically operating rates need to be above 90% before prices accelerate on a sustained basis. Plus, despite the significant expansion in southern lumber production, the abundant timber supply in the U.S. south has kept production costs low. Bottom Line: Although not exciting, 2020 should remain a favorable operating environment for the pallet industry. Demand should remain stable or grow modestly. One key cost, softwood lumber prices should be stable, barring a significant weather or fire event.