Buying & selling
The lumber spike, three years on: what it taught a recycler
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For about four months in 2021, the cheapest way to obtain a wooden pallet in Colorado was to knock on the door of a company that had a stack of them behind the building.
Framing lumber futures went from roughly $400 per thousand board feet to a peak above $1,600. New 48" x 40" pallets that had been $13 became $26 and then, in some quotes we saw, $31. Lead times at two regional new-pallet builders went past eleven weeks.
What happened to recycled pricing
It followed, but with a lag and a different shape. Recycled prices are set by the balance between core supply and buyer demand, not by mill output. When new pallets became expensive, demand for recycled surged — but core supply is a function of how many pallets moved through the economy eighteen months earlier, and that number was fixed.
| Quarter | New | Recycled Grade A | Core buyback | Lead time, new |
|---|---|---|---|---|
| Q4 2020 | $13.50 | $7.20 | $3.10 | 10 days |
| Q1 2021 | $16.00 | $8.40 | $3.90 | 3 weeks |
| Q2 2021 | $24.50 | $12.90 | $6.80 | 8 weeks |
| Q3 2021 | $27.00 | $14.60 | $7.90 | 11 weeks |
| Q4 2021 | $22.00 | $13.10 | $7.10 | 6 weeks |
| Q2 2022 | $18.50 | $10.40 | $5.60 | 3 weeks |
| Q2 2023 | $19.50 | $10.60 | $5.40 | 12 days |
Two things in that table are worth sitting with. First, recycled prices rose by about 100% while new rose by about 100% — the discount held, roughly. Second, recycled prices came down faster and further. By mid-2022 recycled was back near trend while new had settled at a structurally higher level, and it has stayed there.
What actually saved people
Not hedging, and not clever contracts. Three unglamorous things.
- Having a recycler relationship before they needed one. In Q3 2021 we were allocating stock. Customers we had worked with for years got allocated; customers who called for the first time in August got a waiting list and a polite apology.
- Selling their cores instead of skipping them. Companies that had been paying to dispose of broken pallets suddenly discovered they owned an appreciating asset. Buyback rates more than doubled.
- Being willing to accept Grade B. The customers who had specified Grade A out of habit rather than need switched, saved 35%, and mostly never switched back — which tells you something about how the original specification was arrived at.
What stuck, and what did not
Stuck
Three behaviours that survived the return to normal pricing, in our customer base at least.
- Core buyback as a standing arrangement rather than an occasional clear-out
- Grade specified by application rather than by default
- Rolling forecasts shared with the supplier, even informally
What did not stick: stockpiling. Several customers built up six months of pallet inventory in late 2021 and then spent 2022 discovering that pallets stored outdoors degrade, take up yard space that has an opportunity cost, and tie up cash. Two of them sold the surplus back to us at a loss.
Where we think prices go
We do not forecast, and anyone in this industry who does should be asked what they said in January 2021. What we will say is that the structural floor under new-pallet pricing appears to be higher than it was pre-2020, that recycled has re-anchored to it at roughly half, and that core supply on the Front Range remains tighter than demand — which is why our buyback rates have not fallen back to 2019 levels and probably will not.