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Don't Count on Pellet Prices Going Down

Post in 'The Pellet Mill - Pellet and Multifuel Stoves' started by Eric Johnson, Mar 3, 2008.

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  1. Eric Johnson

    Eric Johnson Mod Emeritus

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  2. JustWood

    JustWood Minister of Fire

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    Sawmills are going on the auction block left and right. My company has contracted to haul sawdust ,mulch ,and waste wood from as many as 16 mills in the last 20 years. Currently I only have 1 truck operating 1-2 days a week pulling out of 1 mill versus 3 trucks 6 days a week out of 16 mills 5 years ago. Things aren't looking good for at least a year .Lumber buyers are telling me it could take 3 years before any signs of a robust lumber market. Pellets could sky rocket.
  3. cntbill

    cntbill New Member

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    Interesting article, thanks. But now the trick for me is to find good pellets to stash as my local HD and Lowes only have the not so good brands. I wonder if corn stove sales will rise.
  4. Don B

    Don B New Member

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    Be it oil, corn, pellets, milk, whatever there will always be excuses and angles to run up the price. WHat a load of hogwash.
    There is all summer to make pellets. They just don't get produced in the winter. Kind of like "looks as if the winter fuel oil will be in short supply, expect prices to rise". Every year. Just makes me want to puke.
  5. tinkabranc

    tinkabranc Minister of Fire

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    DITTO
  6. Eric Johnson

    Eric Johnson Mod Emeritus

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    The point is that there is a shortage of raw material used to make pellets. Time of year has nothing to do with it. I'm as cynical as the next guy when it comes to commodity pricing, but in this case, I know that what they're saying is true.
  7. MainePellethead

    MainePellethead Minister of Fire

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    I agree....always an excuse. Housing is down yes....."however"...I have 3 buddies that are General Contractors here in Southern Maine...every one of them say their remodeling loads have gone up considerably which means ...sawdust. One contractor friend says he is booked 8-9 months out....he has never been that far ahead with jobs lined up.
    Also....commercial development here in Southern Maine is huge.
    I'm going to try not to get to worked up on future projections...it'll spoil my summer lol. I have a ton in the basement.....theres a place close by I can get NEWP for 230 a ton...I may just order a few tons for reserves instead of waiting....I agree....from Spring to Early Fall they'll be pumping pellets very hard...hopefully the raw material will be there. I can actually burn a mix of corn and pellets...so that may be an option if pellets overcome in price.
  8. Ken45

    Ken45 Minister of Fire

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    Before you say "hogwash", read the whole article. We have been told by the pellet stove industry that pellets were made from an inexhaustable supply of waste material. Well, sawdust is used in many, many ways and the demand is apparently exceeding the supply. The article quotes how prices have gone from $25/ton to $100/ton and some outfits are driving 400 miles to get sawdust!

    I know a local horse trainer told me last summer that he could no longer find any sawdust locally (I presume a new local pellet mill took it all even though I haven't seen any pellets from there.)

    Like the OP said, don't expect pellet prices to come down.

    If you are buying a stove, it probably makes sense to buy a multifuel stove so that you have more flexibility, but stupid political decisions (corn/ethanol) are jacking up the prices of all grains (I think wheat has trippled in price).

    We have a new wood stove on order, I know that my cost of wood isn't going to go up as long as I'm in shape to cut my own.

    Ken
  9. MainePellethead

    MainePellethead Minister of Fire

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    I agree to an extent Ken of...its going up. However....I think common sense in a way should take over...high oil prices, electrical costs, transportation costs etc...how do they power alot of the pellet plants? I dont think they are solar. So its only logical they have to raise $$ for their costs. In 2005 there was a major pellet shortage....I think it will iron out. Maybe not.
  10. Eric Johnson

    Eric Johnson Mod Emeritus

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    I think you have to factor oil-related inflation into the cost of everything these days. But this goes beyond "normal" inflation, in that raw material costs are a big part of the cost of producing a pellet, and they're rising. So I think the increase in pellet prices might be substantial.

    I don't have a dog in this fight, by the way. I cover the forest products industry in the Northeast for a living, so I'm familiar with the raw material situation. The supply and price of wood residue is a big issue. They're not running in favor of pellet prices, at least not from the consumer's point of view.
  11. JustWood

    JustWood Minister of Fire

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    I DO have a dog in this fight and I from experience know this article as true. Another case of "Shoot the messenger"! These same people will be on here whining about Sept. or Oct. about price or inavailibility.
  12. MainePellethead

    MainePellethead Minister of Fire

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    lol...your right. Dis dog orders early though lol....I'll order my whole season maybe more in a couple days... :)
  13. JustWood

    JustWood Minister of Fire

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    Might not hurt to buy a couple extra ton so you can sell to those who shot the messenger and profit $50-$100 per ton.
  14. JustWood

    JustWood Minister of Fire

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    The lumber that goes into homes is usually produced and dried at a mill that burns ALL their waste to generate electric for the production line and heat for the dry kilns. Pellet makers rely on small to mid scale mill operations for raw product. These are the mills that are going bankrupt and leaving a smaller supply to be had.
  15. Don B

    Don B New Member

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    I am not shooting the messenger, but the fact is the message sucks.

    And for all of you who can just run out and buy a semi load and just store it in your shed til you feel like using it, go for it. We all are not that fortunate.

    And when you do just charge an extra 50 or 100 ton, YOU become part of the problem.
  16. Eric Johnson

    Eric Johnson Mod Emeritus

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    If you're going to go around pointing fingers of blame, you'll have to look a lot farther up the ladder than anyone around here. Sawmill residue, like corn or any other commodity, is priced according to supply and demand. You can't blame the sawmill for going out of business and restricting the supply of sawdust in the process. You can't blame the construction contractor for not building new homes when nobody's buying them. And so on.

    You seem to be implying that greedy sawmills are hosing down the pellet mills. What's actually happening is that the paper mills are bidding against the pellet mills for the same raw material, and that drives up the price. Are you seriously suggesting that the sawmill should sell its product to the pellet mill for less than the pulpmill will pay, just so you can have cheaper pellets?
  17. Don B

    Don B New Member

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    Regional, Regional, Regional

    What do you suppose happens to the sawdust from the 100's of millions of board feet cut in the South, West, and the Pacific Northwest every year that is sent to other countries?Sorry, billions and billions as Carl Sagen would say.....

    http://www.census.gov/cir/www/321/ma321t.html

    Kinda funny(NOT!) When there was a pellet "shortage" in 2005, that was the HIGHEST year of lumber production. Go figure.

    It's a scam.
  18. webbie

    webbie Seasoned Moderator Staff Member

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    The market is always perfect. The pellet mills will get every dollar they can for the pellets and the sawmills every cent for the sawdust. If that turns out to be higher than the cost of coal, oil or gas - so be it. As long as people buy it, they will sell it.

    I wonder, at these prices, if it is worth while for companies to cut timber and make pellets from the whole tree? Maybe Eric can shed some light on the economics of that. It would seem that fast growing southern tree farms might be perfect for that.
  19. Eric Johnson

    Eric Johnson Mod Emeritus

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    Nobody ships sawdust across the country (or very far out of state, for that matter) and stays in business. As the article said, some pellet mills have had to go up to 400 miles for sawdust. That's about 300 more than they originally planned for. And you're suggesting shipping sawdust 4,000 miles? No way. Any sawdust produced more than 500 miles from any pellet mill isn't part of the equation. The number to stay in business is a lot closer to 100 miles.

    If you consider how many more pellet plants there are now compared to 2005, you'll understand why there were shortages back then. I think heating oil was below $2 a gallon in 2005.

    And as Lee points out, most big mills burn all of their sawdust for electricity and process steam. They sell their chips to pulpmills. The pellet plants are a relative newcomer to the market. There were well-established ways to sell sawdust and other residue well before there were pellet mills. Since they're breaking into an established market, they have to pay more to get the material.

    I understand your frustration, but the economy is one big chain reaction, and every business has to react the best it can. If pellet production in this country were a monopoly, then you might have a point. But since there are hundreds of mills all competing with each other for the same market, I think it's safe to assume that the price you pay for a bag of pellets is pretty close to what the market will bear, which is to say, probably a fair-to-middling profit--at best--for the pellet producers.
  20. Delta-T

    Delta-T Minister of Fire

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    IMHO any Pellet maker worth its salt has its own chipper,hammer mill, drum dryer, and gravity separator. They dont really "need" to buy sawdust, they can pound out there own from raw lumber. This isn't really what we all want I think, its much more inviting to think we are burning a waste material that would have few other places to go. I think one one hand you have to look at it as total economics and a relatively young industry. If wood based materials go up, someone somewhere will work out a system for pelletizing something else (be it switch grass, lawn clippings, leaves, peanut shells, ect. ect.). Innovation in power and industry comes when the price of something exceed what any market can afford. Henry Ford designed the Model T to run on alcohol, Rudolph Diesel's first engines ran on peanut and soy biodeisel. Discovery of large supplies of easy to access crude oil in the southwest squashed those technologies and we are just now looking to reclaim and mass produce those fuels. Honestly, who would be burning pellets or wood or anything else if oil or propane was $1.00 a gallon. Factor into that the devaluation of the U.S. $$ and you have some increase in cost. Pellet, and wood sometimes has to be about something other than the $$. The pioneers of the industry lost their shirts until the cost of Oil exceeded that of pellet. They just wanted to be "green", and to some degree support a local fuel industry. Even if you only save $1 a year you still get to support someone local for your fuel. How neat is that. If the USA really wants to lead then you have to take the risk. Anyone do a tally on how many tons of pellets from North America made their way to Europe?? I bet its a lot. So there you have the old "Supply and Demand" again. Pellet technologies require something from the GOV'T, thats for sure and its slow in coming but let us not get discouraged. And BTW, I still expect pellets to get cheaper in the spring than they are now. Maybe not cheaper than last spring though.
  21. Eric Johnson

    Eric Johnson Mod Emeritus

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    From my understanding, what really kills you in the pellet business is the cost of grinding and drying. The people I've talked to say that what they try to do is buy as much dried, fine material as they can, and fill in the gaps with stuff that's green and/or big. The more "roundwood" they have to handle, the higher their production costs.

    What's actually happening is that the mills are contracting with loggers who have debarking/chipping operations to provide suitable clean chips, which the pellet mills are equipped to grind and dry. But the amount of that material they can take and remain in business is directly related to the price they can charge for pellets. Which is why shortages of sawdust and dry shavings will drive up the prices that consumers pay for pellets at the retail level.
  22. Ken45

    Ken45 Minister of Fire

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    If they clean up the logging slash (as was mentioned) and chip it and use it, that's great! I'm in favor of logging, but I hate the mess they often leave behind. It would also be a good use for cull trees.

    Ken
  23. Don B

    Don B New Member

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    Don't you all find it just a bit ironic that the pellet suppliers, oil suppliers, propane suppliers(ok maybe not them), electric suppliers, gas suppliers somehow figure out how to make the cost of all those energy sources the same?
    How in the sam hill does that work?
    The C word maybe???????
  24. JustWood

    JustWood Minister of Fire

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    Well said and very true.
  25. MainePellethead

    MainePellethead Minister of Fire

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    I was referring to larger companies that supply the contractors etc.....such at Irvin Lumber etc . out of Canada. :)
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