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rom a hardwood sawmill owner's perspective, industrial markets were a major headache in 2016. Hardwood pallet lumber and cants lost market share to softwoods. Low oil and natural gas prices curtailed exploration and extraction activities and, in turn, demand for board road and crane mats. Furniture industry usage of solid hardwood framestock contracted sharply. The crosstie sector held up well but is now moderating purchases. Hardwood sawmills cannot operate indefinitely without viable, profitable outlets for industrial products. According to Hardwood Market Report estimates, industrial products comprise almost 60% of hardwood sawmill output. At the very least, mills must be able to keep these products moving at prices that provide a reasonable contribution to the bottom line. Following is an overview of individual industrial markets with an eye toward prospects for 2017. Pallet Stock While reliable data on U.S. pallet production are elusive, many believe production trends parallel GDP growth. The U.S. GDP increased at an annual rate of 3.2% in Q3 2016, following gains of 0.8% in Q1 and 1.4% in Q2. Assuming a simple average of the three quarters, the economy grew at a 1.8% annual rate through the first nine months of 2016. As such, the pallet industry's raw material consumption increased by an estimated 1.8%. While pallet industry consumption of raw materials is likely increasing, hardwood usage is not. Sawmills and pallet manufacturers reported declining hardwood use in 2016 as softwoods further eroded hardwoods' market share. This shift dropped demand below supply in most areas. Pallet cant prices averaged across all regions fell 9% from January 1 through December 23, 2016. Notably, declines were much larger in the Northern (-12%) and Appalachian (-10%) regions than in the South (-4%). Likewise, the 15% average decline from the early 2015 peak was driven more by Northern (-20%) and Appalachian (-20%) than Southern (-4%) decreases. Mat timber and board road business was better and competition for crosstie supplies stronger in the South than elsewhere. Consequently, mills in the Southern region had more flexibility with center of the log production and less pressure to lower cant prices. Appalachian sawmills continue to produce more pallet stock than markets require. Supply and demand are more closely balanced in the North and South, though those situations could change if other industrial markets weaken further. Hardwood 18 PalletCentral • January-February 2017 palletcentral.com F MARKETS Industrial Markets Overview By Hardwood Market Report Copyright: 123rf.com Copyright: 123rf.com