Issue link: http://palletcentral.uberflip.com/i/842358
palletcentral.com PalletCentral • May-June 2017 23 Monetary Fund, World Bank, and most large U.S. banks forecast U.S. GDP growth in the 2.0% to 2.3% range for all of 2017 and are standing by those forecasts despite the low first estimate for Q1. Assuming they are right, pallet production will grow more this year than last, when GDP expanded by just 1.6%. Changing Circumstances for Hardwood From a hardwood standpoint, the first two months of 2017 brought little change in market conditions in the pallet sector – demand for hardwood pallet lumber and cants remained sluggish, supplies were elevated in most areas, and cant prices slid another 1% on average. However, circumstances have since changed. The combination of significant hardwood price declines over the last two years and softwood price increases appears to have stopped the erosion in hardwood's share of the wood pallet market. The imposition of 19.88% preliminary countervailing duties on Canadian softwood lumber imported to the U.S. effective April 28, 2017 is helping to stabilize industry demand for hardwood, as is uncertainty about the final outcome of the US-Canada softwood lumber dispute. Pallet manufacturers are now more open to discussing various raw material options than at any time during the last two years. Wet weather has also compelled pallet plants in some areas to increase hardwood purchasing as a hedge against potential shortages. Relative to earlier this year, supplies of hardwood pallet material have come down in the U.S. and are now more closely aligned with demand. These trends are more pronounced for cants than pallet lumber, demand for which is better but still weak. Also, reports from Canada indicate markets for pallet lumber and cants remain glutted and hardwood sawmills have seen no substantive improvement in that business. Even so, reported cant prices have been level, overall, in all Eastern hardwood producing regions the last three months. Supply Considerations Industrial products such as pallet lumber and cants, railroad ties, board road, crane mat timbers, and framestock account for nearly 60% of U.S. hardwood sawmill output, according to Hardwood Market Report estimates. Moreover, sawmills must be able to move residual byproducts like chips, sawdust, and bark to remain in operation over the long-term. Markets for most industrial products and residual byproducts have been and remain unsettled. So far, that has only served to prevent hardwood production from increasing but has not caused it to decline. Barring additional contractions in these markets, hardwood raw material availability for the pallet industry should remain adequate. In fact, mills will likely be diverting more fiber into pallet stock due to limited purchases by other industrial markets. However, sawmills would probably be forced to curtail production if these markets undergo further contractions, which could tighten supplies of pallet stock. That scenario is unlikely but not completely out of the question. Pallet manufacturers are now more open to discussing various raw material options than at any time during the last two years.