Why Aren't Pellet Prices Dropping

Dana B said:

This is only my second season heating with pellets but I'm disturbed to see that pellet prices have increased rather than decreased. I was led to believe by those who've been heating for pellets for years that pellets generally follow oil. Oil prices, at least in New England, are the lowest they've been in a very long time.

Click to expand...

Supply and demand. And it's not an instantaneous reflection of oil price changes, there are a lot of pellets in the system . But if demand stays high enough you may not see any drop, not soon anyway. This year everybody and their brother bought into more pellets than they need, that raises demand and lower supply . Over seas demands more, though lower grade pellets it's still pulling from the raw materials. New pellet burning people coming on board causes more demand. How do you figure with all that going on pricing would drop ? Things needs to stabilize. Then you might see a modest drop or leveling at least..

Don't hold this as gospel, but I think last winter caused a panic for a lot of pellet burners. I remember going to the local pellet yard and waiting in a line 30 cars deep, and could only buy 10 bags at a time. Everyone is snatching up pellets as soon as they are available and supply/demand dictates price. If the manufacturers can charge $300/ton and get away with it, they will. I would imagine that if this winter is a little less harsh, and people have a supply at the end of the season, there won't be a "freak out and buy all the pellets you can" syndrome next year, and people will shop a little more.

Also, with oil prices being so low, the manufacturers may take a little profit hit when more people fill their tanks and buy less pellets, hopefully evening out the playing field.

(at least that is what I am hoping for - with oil prices in central MA hovering around $2.90/gal, it will be disappointing if pellets do not follow the same trend in the upcoming seasons).

Why would pellets follow oil? Maybe a bit for transportation but pellets take a lot of electricity to produce many parts of the country have seen a large increase in price. I'm slightly surprised pellet prices are where they are though I personally think its a lot of FUDD. But I know nothing about the industry.

guitarjamman said:

(at least that is what I am hoping for - with oil prices in central MA hovering around $2.90/gal, it will be disappointing if pellets do not follow the same trend in the upcoming seasons).

Click to expand...

If you happen to heat with electric in NGrid's territory, the 37% increase in the supply rate is a pretty good incentive to find an alternative heating source and go to pellets.

Pellet are entirely dependent on supply chain economics and cost to manufacture. Manufacturing costs have increased in the last decade, not decreased and, pellets are made from recycled wood products, not virgin wood so the recycliable materials have to be present, why, I, prefer to be flexible on fuel sources. If field corn stays down, next season will be a corn year, not wood pellets.

SidecarFlip said:

Pellet are entirely dependent on supply chain economics and cost to manufacture. Manufacturing costs have increased in the last decade, not decreased and, pellets are made from recycled wood products, not virgin wood so the recycliable materials have to be present, why, I, prefer to be flexible on fuel sources. If field corn stays down, next season will be a corn year, not wood pellets.

Click to expand...

Recycled wood is good in theory but up in Maine someone posted here that logs were going straight to the pellet mills. So raw material becomes more open at that rate. I figured it was a matter of time before this happened, we only have so much saw dust from industry, building etc. So instead of fire wood from logs we produce pellets from logs, think of the difference in that cost.

Maybe out your way in New England, In the midwest and on, people don't use oil for heat and people don't use pellets either. NG is the fuel of choice and NG is exponentially cheaper per obtained BTU than pellets will ever be, at least in the foreseeable future. The exception to that are folks like us who heat with LNG, which is a bit higher than pellets.

Pellets are supply and demand. This year I pre bought 5 ton of pellets for just over 200 bucks a ton and I bet in NE, 200 dollar a ton pellets is unheard of simply because price is predicated on demand.It's capitalism at work.

alternativeheat said:

Recycled wood is good in theory but up in Maine someone posted here that logs were going straight to the pellet mills. So raw material becomes more open at that rate. I figured it was a matter of time before this happened, we only have so much saw dust from industry, building etc. So instead of fire wood from logs we produce pellets from logs, think of the difference in that cost.

Click to expand...

That may be true but I bet that quality saw logs aren't going to pelletizers simply because quality saw logs demand a higher price than pelletizers are going to pay. In other words, it makes no economic sense to to hammermill saw logs that could be going into furniture production, that would be ludricrious.

Dana B said:

I think the shortage last year did a lot to drive demand this year. I don't know that there are so many new people this year using pellets instead of oil. How can that be proven aside from anecdotal evidence? I don't know that much about the pellet industry either but from what I have observed it has some appeal in that it is a more local product so you're supporting the local economy rather than the middle east economy. Also it doesn't appear to have been as corrupted and monopolized as the oil industry....yet.

Click to expand...

I don't know, if you go by articles in Biomas Magazine's Pellet arena, they seem to indicate several new demands or increased old demands. I think they follow the trends at least better than I can. in one article posted here at the forum recently, they claimed a substantial increase in pellet stove sales in the US. Certainly sales can tracked. in a world where you can't take a leak in your back yard into a bush that a satellite might pick up on it, certainly they can track stove sales.

You are much better off using already milled lumber (like used skids and pallets) for hammermill fodder because they are mostly hardwood and hardwood and hardwood blends provide better BTU output per weight incenerated than softwood, and, make less ash.

SidecarFlip said:

You are much better off using already milled lumber (like used skids and pallets) for hammermill fodder because they are mostly hardwood and hardwood and hardwood blends provide better BTU output per weight incenerated than softwood, and, make less ash.

Click to expand...

And they are pre dried.

Thats good for me (increased sales) in as much as I'm about to launch a couple products for my business, replacement agitators and burn pots. Agitatoes especially, are consumable because of the oxidizing qualities of the oxygen rich firebox. I have quite a bit of 313 stainless bar on order right now.

SidecarFlip said:

That may be true but I bet that quality saw logs aren't going to pelletizers simply because quality saw logs demand a higher price than pelletizers are going to pay. In other words, it makes no economic sense to to hammermill saw logs that could be going into furniture production, that would be ludricrious.

Click to expand...

It's probably what we charmingly call pi*s oak ( excuse the term, it's a local one for less than desirable white oak with loose grain, often comes out of semi wet lands) and scrub pine actually. Not top quality wood, correct.