Summary
• Pallet wood costs have risen about 10% in recent months.
• A contamination scare in the US has made pallet customers jumpy.

In the pallet sector, the supply and price of raw material is a big issue.

A pallet wood agent told TTJ that manufacturers were “not happy” about the increases “but it’s a case of supply and demand”. With less timber about, the contact forecast continued price escalation.

He also reported more timber coming in from the Baltics, although weather was affecting operations there. He said business was quiet over the winter but enquiries from larger companies were picking up.

Timcon admits that timber price rises were putting a “significant strain” on pallet and wood packaging manufacturers, particularly as demand remained low. Imported kiln-dried timber prices have risen by more than 20% over the past nine months (Pöyry Index), leading to more reliance on home-grown supplies.

Several manufacturing contacts voiced concern about construction activity increasing, fearing that sawmillers will seek to sell a higher value product into that sector. Competition from the subsidised biomass sector is also an issue.

“Home-grown sawmills are now sophisticated and they want to supply sensible sizes,” said one contact.

Overpricing warning

He warned against overpricing of timber and new pallets, otherwise imported products will increase. Instead, he called for gradual price escalation that could be accommodated by the new pallet sector. “If the home-grown sawmillers go over the top, will it all come unstuck?”

Another manufacturer reported a 10% spike in raw material costs in recent months. “If prices continue on the up we could see more manufacturers stop operations. There has been a lot of short buying and long selling.”

Customer demand for one to two-year pallet supply contracts is proving a vexing issue in this world of cost inflation.

Despite some factory closures and company failures, many small to medium pallet manufacturers have so far survived the recession. One contact estimated that 10 million pallets worth of capacity has been lost over past two years, but thought current market conditions demanded twice that level of cuts.

The consensus is that more companies will fail, unless the market comes back.

Demand

Demand is reported to range between very depressed to “steady”, with a spring improvement touted due to increased activity in the canning and bottle sectors prior to the World Cup.

Some customers have looked to second-hand/repaired pallets to save on costs, but there are also suggestions that some are finding these harder to find.

A contamination scare in the US which saw Johnson and Johnson recall 500 lots of medicines, citing contamination caused through storage of bottles on wood pallets, has also made several customers jumpy about what their pallets may be treated with.

The use of methyl bromide to treat pallets will cease on March 19, which should have little effect as most pallets are now heat-treated. But the prospect of heat treatment being required for pallet journeys within the European community remains a future possibility.