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Crosstie Market Stays Strong
Crosstie Market Update: After a very strong year for crosstie demand in 2011, the loss of a tax credit could cause demand to drop back to 2010-2011 levels although track infrastructure investment continues thanks to expanded drilling operations.

By Ed Brindley
Date Posted: 4/1/2012

          Every hardwood sawmill, particularly those close to a major tie treatment plant, is aware of how competitive the tie market has been for the center of hardwood logs.  The most recent issue of the Railway Tie Association’s (RTA) Crossties magazine carried a few editorial pieces that focused on the healthy crosstie market. Also, the first quarter issue of Forest and People recently carried a comprehensive article on the hot crosstie market. Some key points are replicated in this article.

          First, the railroad industry in North America has been healthy and continues its growth of rail traffic. The Association of American Railroads reported in January an increase in weekly rail traffic. For the week ending January 14, U.S. railroads reported traffic being up 5.5% compared with the same week a year earlier.

          After several decades when many miles of track were removed, the trend has reversed itself. Some new track is being laid and attention is being paid to track maintenance.  The average mile of track contains more than 3,000 ties. An active line averages enough wear to replace 1.5%-3% of ties annually. In spite of attention given to alternative types of ties, about 93% of ties today are still wood with concrete, plastic composite, and steel ties being the alternatives.

          The RTA indicates that the wood tie market is growing about 14% a year. System wide a treated hardwood tie stays in track an average of over 30 years.

          Fred Norrell, an economist, in a Crossties article wrote, “The U.S. economy is limping along, but one would not know it from examining crosstie purchasing data. Crosstie purchases are booming. Class 1 purchases are on track to finish the year (2011) with a 5-plus percent increase. Small market purchase in 2011 experienced explosive growth, apparently in response to the investment tax credit and gas and oil drilling. Together these two market segments helped tie purchases reach 10% growth in 2011.”

          Some expect 2012 to continue the positive trend for tie demand. Gerry Roskovensky of Koppers recently wrote, “2012 will be an excellent year for the crosstie industry. Crosstie prices continue to increase due to large orders of ties purchased by both large and small railroads.”

          Contrary to what Roskovensky believes, Norrell wrote “The outlook for 2012 is comparatively grim; with no tax credit in sight, crosstie purchases are predicted to fall about 15%, putting them at a level just above those of 2009 and 2010. For the crosstie market as a whole, then, 2012 will be a year where Class 1 tie purchases retain more vigor than the small market tie purchases. In the absence of a tax credit, purchases are predicted to fall by about one percent overall.”

          Jim Gauntt, RTA executive director, wrote, “A remarkable feature of this year will be the continued and increasing rail infrastructure investment to deal with expanding drilling operations in the oil fields of several areas in the United States and Canada. Frack sand, pipe, and other materials must be shipped to the drilling areas. Until pipelines are completed, trains carrying these materials in can also be used to transport crude out, so there is increased heavy traffic flowing in both directions. That’s where the need for new ties, not related to ongoing maintenance, is greatest outside of any tax credit impact on railroad spending.”

          Gauntt further wrote, “At press time, there did not seem to be a vehicle for extending the tax credit. In its absence, the short line and smaller market tie demand for 2012 will be reduced significantly…There is anecdotal evidence that exports of wood ties are increasing to U.S. neighbors to the south. Mexico, and other Latin America, Caribbean, and South American buyers have increased their demand for U.S. wood ties.”

          Gauntt continued, “On the positive side, the economy seems to be growing, if only marginally, and the Class 1 programs are expected to remain solid. Plus, there is new track construction occurring into and out of oil fields of the United States and Canada.”

          The net result is that crossties are likely to continue their heavy demand and its impact on the supply of hardwood cants. On the other hand there is a belief that softwood purchases for pallet and container construction are likely to grow. Two major drivers behind this trend are the popularity for softwood in block pallet production and the benefit of kiln dried lumber to mitigate mold concerns. This potential shift toward softwoods may be significant over time and could affect the hardwood demand by the pallet industry, but any significant impact is likely to be intermediate to long term, more than short term.

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