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24 PalletCentral • November-December 2017 palletcentral.com n 2016 and early 2017, hardwood sawmills experienced declining demand and prices in pallet, railroad tie, and other industrial sectors – markets essential to sustaining mill profitability and ongoing operations. However, the situation has changed markedly in the last six months. Following is an overview of individual industrial hardwood markets with an eye toward prospects for 2018. Pallet Stock Hardwood consumption by the U.S. pallet industry will show a net decline in 2017, according to HMR estimates, but that does not tell the whole story. Market circumstances for hardwood pallet lumber and cants have improved quite a bit in a relatively short period of time, and are much different now than earlier this year. During the first three to four months of 2017, hardwood sawmills in the eastern United States struggled to generate enough orders to cover pallet lumber and cant production. Pallet manufacturers had decent business, but softwood raw materials had taken considerable market share from hardwoods. Hardwood cant prices were at the lowest levels in several years. In the months that followed, pallet manufacturers reported growth in pallet sales generally in line with U.S. economic growth. At the same time, reduced availability and firm to rising prices for softwood raw materials started to bolster demand for hardwood cants. The upturn was isolated to a few areas at first, then quickly spread. Hardwood cant supplies tightened during the summer as wet weather hampered logging activity and, in turn, sawmill production. Improving markets for crossties also had a moderating effect on cant supplies. Prices began to firm in late-July and climbed nearly 8% by the end of October (Hardwood Market Report® prices averaged across all regions). Market for hardwood cants are fairly energized as 2017 comes to a close. Some wooden pallet manufacturers are struggling to procure sufficient volumes, and many are reaching further afield and/or paying higher prices for cants. In total, we estimate hardwoods have recaptured only a fraction of market share lost to softwoods in the last two to three years. But, the gain, however modest, has been a difference-maker for hardwood sawmills. Hardwood suppliers are enjoying better cant business than earlier in the year, but history shows such improvements can be fleeting. Pallet manufacturers have very slim margins and will continue to seek out the lowest- cost raw materials available. Any downturn in softwood prices will quickly prove that out. And, as we have noted here before, competition from softwoods may be about more than just price. Railroad Ties Markets for hardwood crossties were in a slump by the start of Q2 2017 that only I MARKETS By Hardwood Market Report Supply and Demand Trends