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March-April-2014

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other industrial and low-grade lumber products began pushing pallet cant prices up rather quickly last summer, and prices are now almost 15% higher than a year ago. However, average prices climbed 49% for green 4/4 #2&3A Common Red Oak and 44% for frame stock during the same period, and crossties prices rose faster than cants in actual dollars. Average pallet cant prices are currently 44% below 4/4 #2&3A Common Red Oak prices and $165-190/MBF below frame stock and crosstie prices. While price differences do not directly correlate with net revenue differences, it is easy to see why many sawmills have turned their focus from cants to other products. Pallet producers are facing the toughest hardwood procurement environment they've ever seen, according to McBee of Pallet Enterprise, who believes low-grade hardwood availability will be a challenge for much of 2014. Potential Pallet Sector Responses There doesn't appear to be much raw material cost relief ahead for pallet producers. Sawmill production will increase 5-7% in 2014 but demand from competing sectors won't let up. Wooden pallet industry observers, however, see several reasons for hope in 2014 and less chance for market share erosion than we would have guessed. First, pallet demand will grow in 2014 along with the economy. Wood pallets are 1/3 the cost of plastic pallets and are stronger, according to PNG Logistics, which will keep them a favorite of shippers who put heavy emphasis on cost, strength and durability – which is the majority according to the MMH survey. Second, there has been a pronounced shortage of used pallets – or "cores" – for several years. More than a quarter of respondents to the MMH study reported shrinking availability of used pallets, and Trebilcock said the prices of those poorer quality cores have risen significantly. In 2013, palletcentral.com PalletCentral March-April 2014 37 T.L.B. FOREST PRODUCTS INC. Contact: Gaétan (Ext. 223) or Oliver (Ext. 226) E-mail: gaetan@tlbhardwood.com Tel: 450-492-5130 fax: 450-492-5918 1336, Chemin des Anglais Terrebonne QC J6X 4G3 The Canadian Birch Specialist Ready to Nail Pallet Components www.tlbhardwood.com HARDWOOD LUMBER WHITE BIRCH & ASPEN CANTS AND PRECUT oliver@tlbhardwood.com Hardwood Lumber Market Overview S evere weather across much of the hardwood producing region this winter will likely slow production, extend the inventory shortage, and keep lumber prices firm through spring. Domestic demand for hardwood lumber should recover at least as fast in 2014 as it did last year. Improvements in employment, the overall economy and new home construction will pull up demand for cabinets, flooring and furniture, as well as for pallets, railroad ties, industrial timbers, and crane mats and board road for the energy sector. The phasing out of quantitative easing will probably push mortgage rates higher in the long-term regardless of recent decreases, but the Fed won't let rates rise enough to derail the housing recovery. Hardwood lumber exports from the U.S. set a new record in 2013, and 2014 volumes should surpass it by 5 to 7%. Sawmills will be working hard to increase lumber production to meet rising demand. However, long lead times for new mill equipment and dry kilns are hampering efforts to quickly increase production. Log prices will be equally troublesome. Some substitution for North American hardwoods by other species or even by non-wood products may occur in some markets and applications, but concerns about significant market share erosion are unfounded.

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