Issue link: http://palletcentral.uberflip.com/i/638772
While U.S. softwood lumber production increased, exports trended in the opposite direction. Year-to-date exports were down 13.8% through September to an annualized pace of 1.32 BBF. Volumes were off 10.0% and 39.8%, respectively, to top destinations Canada and China. Meanwhile, Canadian exports rose 2.0% to an annualized pace of 17.38 BBF on the strength of a 6.0% increase in shipments to the U.S., which purchased almost three-quarters of exported Canadian volume. However, Canadian exports to China plunged 14.6% to an annualized pace of 2.77 BBF. American producers said the U.S. dollar's strength against the Canadian dollar and Russian ruble was a major factor in declining exports, and shippers in both the U.S. and Canada blamed reduced housing construction in China for weaker shipments to that country. The combination of rising production, slower exports and increased imports from Canada had U.S. markets for softwood lumber saturated for much of the year. Prices for some commonly traded low-grade softwood items fell by more than 40% between January and September, according to market participants. Pallet Industr y Demand The spring/summer slump in low-grade softwood prices occurred despite healthy demand from the pallet industry. Producers and traders of softwood lumber say sales to pallet manufacturers expanded in 2015 at roughly the same rate as U.S. gross domestic product, which grew by 0.6% in Q1, 3.9% in Q2, and 2.0% in Q3 (annualized rates). "Several years ago, markets for #3 and #4 were drying up, but that has completely changed," said one large Southern Yellow Pine producer. The company is now enjoying brisk sales of both commodity and specialty pallet lumber to regular customers, and is also receiving more inquiries from other pallet manufacturers. Softwood sellers in other parts of the U.S. and in Canada gave similar reports. In some areas, sales to pallet manufacturers grew faster than the overall economy because softwood captured a larger share of the market at the expense of hardwood. Surging hardwood pallet lumber and cant prices fueled increased softwood use in the pallet industry in 2013 and 2014. And, with softwood prices falling even faster than hardwood during the first three quarters of 2015, the trend continued. One manufacturer that made a majority of its pallets from hardwood just a few years ago is now 92% softwood, and many others have shifted from 60-70% hardwood to 60-70% softwood in a relatively short time period. According to pallet manufacturers, softwood has additional benefits besides lower costs. One explained, "Softwood is usually readily available, most is already heat-treated so there are no issues with potential mold, and we can process it much faster than hardwood." Four th Quar ter Rebound From their late summer lows, prices for most low-grade softwood lumber items climbed – in some cases dramatically – during the fourth quarter of 2015. Buyers and sellers reported large increases in prices for Southern Yellow Pine and Spruce- Pine-Fir, species used widely in pallet manufacturing. Contacts attribute the pricing rally to reduced sawmill production and buyers reentering markets when prices hit bottom. Softwood L umber Agreement From October 2006 through October 12, 2015, Canadian softwood lumber shipments to the U.S. were subject to taxes and quotas whenever the Random Lengths Framing Lumber Composite Price fell below specified levels. This per the Softwood Lumber Agreement (SLA) between the two countries, which derived from the U.S. claim that the Canadian lumber industry is unfairly subsidized by below market timber prices set by Canada's federal and provincial governments. Producers in most Canadian provinces would like to see the SLA renewed with minimal changes, while many in the U.S. would prefer to see tighter restrictions placed on Canadian palletcentral.com PalletCentral • January-February 2016 35 The combination of rising production, slower exports and increased imports from Canada had U.S. markets for softwood lumber saturated for much of the year.