Issue link: http://palletcentral.uberflip.com/i/801657
palletcentral.com PalletCentral • January-February 2017 19 producers will have difficulty recapturing pallet industry market share from softwoods, given readily available low-cost softwoods from both the U.S. and Canada. Moreover, competition from softwoods may be about more than just price. Railroad Ties Freight traffic on U.S. railroads was down 7% year-to-date through the first 10 months of 2016, according to the Association of American Railroads. The decline resulted primarily from large reductions in shipments of coal (-24%) and petroleum and petroleum products (-22%). Railroads and tie treating plants made only gradual changes in crosstie purchases during the first three quarters of 2016. Meanwhile, weakness in other industrial hardwood markets caused tie production to soar. According to Railway Tie Association (RTA) data, Q2 2016 and Q3 2016 were the second and third best quarters in history for tie production. With inventories swelling throughout the crosstie supply chain, and tie insertions seasonally slowing, treating plants took more aggressive steps to moderate purchases from mid-fall onward. Many implemented purchasing quotas and price reductions to slow receipts. Lower traffic and revenues should cause railroads to further reduce capital expenditures in 2017, including crosstie purchases. RTA forecasts a 1% decline in tie purchases to a six-year low of 22.91 million. Still, that is a very healthy demand level for wood ties, equivalent to more than one billion board feet of raw material. Board Road and Crane Mats Demand for board road and crane mats is closely tied to price trends for oil and natural gas. During the 19 months ending in February 2016, benchmark West Texas Intermediate spot crude oil prices plunged from $105/barrel ($/b) to $26/b, and Henry Hub spot natural gas prices slid 45%. Consequently, the number of North American onshore rotary gas and oil drilling rigs in operation dropped from nearly 1,900 in November 2014 to 380 in May 2016. Meanwhile, several gas pipeline projects in the Southern U.S. experienced permitting delays. Sawmill sales of board road and mat timbers were weak throughout 2016 except in the South, where mat manufacturers maintained production in the expectation that permit-delayed projects would soon be underway. However, Southern markets became glutted by fall, partly because large volumes of used mats were recirculated into the market from completed projects. During the second half of 2016, oil and natural gas prices bumped up, and hundreds of drilling rigs were restarted. Looking ahead, the Energy Information Administration forecasts crude oil and natural gas prices will average $50/b and $3.12/MMBtu in 2017, respectively, up from $43/b and $2.50/MMBtu in 2016. The oil and gas industries are likely to offer mat and board road While pallet industry consumption of raw materials is likely increasing, hardwood usage is not. Copyright: 123rf.com