MAY 2018
Source: US HARDWOOD LUMBER CONSUMPTION AND INTERNATIONAL TRADE FROM 1991 TO 2014
So how did industrial hardwoods push beyond $500? China.
As the industrial hardwood market was settling into what seemed like another ‘new normal’ in mid-2010, new problems were on the way. Railroads were increasing rail tie purchases, horizontal drilling and ‘fracking’ were gaining traction, but the big driver was the exportation of hardwood to China.
From 2005 to 2010 the railroad industry purchased rail ties for maintenance projects at a very consistent rate. From 2010 to 2016 that number steadily increased 47% in just 6 years. A rail tie is essentially a very large cant. So, every rail tie purchased is a cant that won’t be available to pallet mills. Currently, there have been cross-tie buys at $750/MBF.
The Eagle Ford shale formation saw early drilling in 2008 but the granting of permits skyrocketed in 2010, followed shortly by the Marcellus formation in OH/PA and numerous other gas/oil reserves that these new techniques unlocked. The drilling required the use of crane mats and rig mats…both are variations of timber roads/platforms required for equipment to reach drill sites while staying within environmental regulations. Being such a small portion of the drilling cost, drillers
approach produced crane mats being purchased at $800/MBF when hardwood cants were running $400/MBF. Just like a rail tie, the timbers used to create these mats are essentially oversized cants. Every timber used for matting is literally a cant removed from the market for the pallet manufacturers. These activities, which would spot buy larger quantities of lumber at prices outside the purchasing limits of the pallet industry, caused (and still do) large sudden price spikes and availability problems.