Economic headwinds take their toll on Southern Yellow Pine industrial markets
Southern Yellow Pine prices have plummeted in recent months as a result of inflation and other economic challenges
Soaring inflation and myriad other economic headwinds have hammered many end-use markets for Southern Yellow Pine (SYP) low-grade lumber at least as hard as the more heavily publicized impact on single-family housing, many traders lament.
Demand for commodity pallets, a key sector for SYP #4 lumber, has weakened dramatically in recent months. Rising costs of living and eroding overall economic conditions draw much of the blame. The most commonly produced pallets, primarily 48x40-inch, were tight in early 2022, which helped fuel historically strong prices in Southern Yellow Pine #4 lumber.
However, pallet sales have fallen sharply in the second half, as ongoing weakness in economic conditions dragged down demand. Commodity pallets grew abundant in recent months as a result.
Declining sales in many other industries have reduced demand for packaging used in shipping heavier industrial items such as air conditioning units and similar products. Low-grade prices have fallen at a faster rate this year than the more heavily produced higher-grade items used in housing.
The reported price of Southern Yellow Pine eastside #4 2x4, for example, hit its year-to-date 2022 peak in March at $762, second only to May and June 2021 as by far the highest monthly average on record.
Since the March peak, the reported price for that item has plunged 71% amid seven consecutive monthly declines to $220 in October, the lowest since July 2020. Prices of wider widths in #4 have followed a similar pattern, and the trend extends to the central and westside zones.
By comparison, the Southern Pine Composite Price has declined 58% from a March peak of $1,131 to $477 in October. The monthly average for SYP #2 2x4 on the eastside has fallen 62% from $1,284 in March to $485 in October.
Lower grades, especially #4, represent a shrinking portion of total Southern Yellow Pine production. Modern technology in recent years helps mills produce a rising percentage of #1 and #2 grades.
Despite this trend, industrial lumber buyers have purchased minimal volumes of low grade beyond contracts in recent months. “I don’t think folks like us are worried about supply anymore,” said a large eastside #4 buyer. “It seems there is plenty of low grade out there for everyone and I don’t think any of us feel like it’s going away anytime soon.”