Crossties

MAY-JUN 2018

Crossties is published for users and producers of treated wood crossties.

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CONTACT RTA WEBSITE BECOME A MEMBER BECOME A MEMBER RTA WEBSITE CONTACT Cahaba Pressure Treated Forest Products Eagle Metal Products East Coast Railroad Gross & Janes Co. Hurdle Machine Works Koppers Inc. CROSSTIES • MAY/JUNE 2018 12 MARKET UPDATE in which the administration contemplates intervention in the energy market. In this directive, fulfilling its promises to the coal sector, the transmission lines would have to buy power from coal-fired power plants as a first choice for two years. In conjunction with recently imposed tariffs on steel and aluminum imports, this could lead to a significant increase in the demand for coal and coke. Combining these outlooks, our tie demand forecast for 2018 has not changed much since January. We also present a new forecast for 2019 (Table 2). However, before we review the results of the econometric model, an explanation is in order. In January 2018, we forecast total tie purchases to be 22,508 thousand for the year 2017. The actual number was 23,832. This was a 5.9 percent miss, yet almost within forecasting statistical error range. What caused the discrepancy? While the model performed well for the Class 1 purchases, where the difference was only 0.3 percent, it underestimated the small market by 19 percent. While good and consistent data, plus excellent support from AAR for Class 1 exists, the small market is very fragmented and consistent quality data is hard to come by. Recent forecasting work has concentrated on that section of the market, resulting in an overhaul of the econometric equations. As shown in Table 2, tie purchases declined in 2017 and are expected to weaken further in the current year; this weakness manifests in both Class I RRs and short lines; however, 2019 is predicted to bring positive growth in tie demand. On a purely speculative note, actual tie purchases for 2018 and 2019 may ultimately be affected by a looming problem on the supply-side of the equation. RTA reported Inventory-to-Sales Ratio (ISR) has plummeted throughout 2018. While the model generates a fundamental economic case for demand, it cannot be expected to account for certain "live" marketplace factors that could negatively impact actual purchases. Should this occur, one could expect, as in the past, that pent-up demand could carry forward into future years. TABLE 2 FORECAST: New Wood Crossties (in thousands) Year Real GDP Class 1Purchases Small Market Purchases Total Purchases Pct. 2014 2.4% 15,931 7,083 23,014 -5.9% 2015 2.6% 16,566 7,417 23,983 4.2% 2016 1.6% 16,531 8,080 24,611 2.6% 2017 2.3% 15,929 7,903 23,832 -3.2% 2018 2.9% 15,294 7,578 22,872 -4.0% 2019 2.6% 15,775 7,731 23,507 2.8% 60 70 80 90 100 110 120 130 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Kilowatthours Generated per 1 million BTU Coal Natural gas FIGURE 3 Source: Energy Information Administration MADE IN Moscow, TN USA - 2 week build time so you can start production faster - Install in days not weeks - Fast and efficient without complicated electronics - Simplest, worry free carriage in the industry - Mill packages for cutting logs from 6 - 30' long - Engineering improvements for 40+ years - Add up to 650 ties per 8 hr shift to your operation - Replacement parts fully stocked and ready to ship - Replacement parts fully stocked and ready to ship www.youtube.com/HurdleMachineWorks Over 500 COMPLETE mills sold! CALL US NOW! 901.877.6251 simple. dependable. affordable Built solid and simple Quick, easy install Consistent, proven performance CARRIAGE Setting a new standard Want to make more ties?

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