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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. Ken45

    Ken45 Minister of Fire

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    How about "Supply and Demand"?

    Ken

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  2. JustWood

    JustWood Minister of Fire

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    Logging slash is too dirty to be used as raw product for pellets but cull logs would work.
  3. heb80

    heb80 New Member

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    How long can a ton of pellets be stored? Is it a bad idea to buy them up and store them for years if you have the space? Or will summer humidity deteriorate them summer after summer.
  4. JustWood

    JustWood Minister of Fire

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    If you think pellets are high priced now just wait till biomass power plants and biomass to ethanol becomes a bigger player in the energy markets. Wood residue in the woods or at mills will be nonexistent. It may even become tough to get firewood in the not to distant future. It will all be based on fossil fuel prices not greed or a conspiracy.

    In the last few days on road diesel has topped $4/gallon. This equates to $500 to fill my log trucks which will be used up in approx. 1.5 - 2 days. My mill and pallet shop have been shut down since Christmas and no plans in the foreseeable future to start back up.I'm seriously considering a different occupation. So Don B if you think the mills and pellet operations are getting rich at your expense then I have a very profitable and diversified business I will sell you at a bargain price. Surely you could have the bank note paid for in a year and be making millions at $4/gallon fuel!!!!!!!!!!!!!!!
  5. Don B

    Don B New Member

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    Diesel is a byproduct of refining oil. It is a heavy oil compared to gasoline, which is a further refinement of the crude oil.
    I know you have to pay $4/gallon, but it is still Collusion. We get a relatively small percentage of our imported oil from unstable governments. Most of our oil into the US comes from Mexico and Canada. Their economy is based on ours, so why is Diesel more expensive than gasoline? In all other parts of the world, Diesel is LESS than gasoline. Is that still Supply vs. Demand? I don't think so.

    Also, bio leftovers, whatever they are, vary in efficiency to convert into energy. Our government, through lobbyists have chosen the most INEFFICIENT ways to convert energy. Ethanol is a joke! It is a pure political move based upon lobbying. From a scientific perspective, it is a BAD choice. Same with wood chips and the like. There are way more efficient bio material to convert to energy, they are just not politically rigged.

    So, if we just get in line with all the little lemmings and follow them to the gas/diesel pump, nothing will ever change. Other than more of those dollars will leave your pocket to fill the rig.
  6. Ken45

    Ken45 Minister of Fire

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    How about "supply and demand". That hasn't been repealed. Diesel competes with heating oil. This is still heating oil season in most of the country. Once heating season is over, diesel will probably come down some.

    The prices are also affected by speculation. Right now, ALL commodities are jumping because they are going up in price and everything else is dropping. It's seen as a "safe haven" for the speculators.

    Just who do you think is "colluding"? The big oil companies are getting squeezed as their raw material is going up faster than they can raise the prices of their finished product. If there is collusion, it's by the oil producing dictators.

    There are hundreds of oil companies competing around the world, all of them cutthroat. Collusion is not too likely.

    Actually, the crude oil prices are heavily influenced by our out of control federal and consumer spending. Globally, oil is priced in U.S. Dollars. The value of the dollar has been dropping to record lows vs. most other currencies. Would YOU sell your oil to someone for the same price today as last year when they were going to pay you with a currency that was worth 30% less? Of course not! You're not stupid, you would expect at least the same payment IN REAL money, not the funny money the Fed is printing.

    Our government keeps spending money it doesn't have and consumers keep spending money they don't have. That deflates the value of what we are spending, making it worth less. We are not manufacturing as much REAL things today as we used to, we'd rather buy them cheap from China but what do we have to give China to pay for the goods? More and more debt.

    When dealing with a commodity in tight supply, it doesn't matter if it is a large percentage or small. If oil production was 10% more than demand, prices would fall. But with it running neck and neck, whoever controls the last 1% controls the price.

    Furthermore, even our "friends" Canada and Mexico want more for their oil. High prices is the only thing making Canadian oil available (it makes the oil sands worth developing) but the Canadian governments want more and more royalties for the oil (likewise the state of Alaska). Unfortunately, Alaska and Canada are taking lessons from Chavez and wanting a bigger slice of the payout.

    Agreed, but then we have to realize that politics is the whole goal of Washington and has nothing to do with doing the right thing.
  7. Ken45

    Ken45 Minister of Fire

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    Quit spending exhorbitant deficits, financed by lies. Each year the government spends tremendously more PLUS doesn't even count the costs of Iraq and a lot of other items that are "off budget". And the budget only looks as good as it does (which is pretty ugly) because the government is spending the Social Security taxes as current income. When SS has to actually start paying out more than it takes in, there closet is going to be empty.

    We are currently financing our govenment by printing money and bonds. All of that makes the U.S. Dollar worth less and less (e.g., other countries will demand more and more dollars for oil, electronics, clothes, and everything else we import).

    The U.S. Dollar used to be based on the gold standard. Dollars were backed up by real gold bullion. When I was a kid, dollar bills were redeemable for silver (it was printed on the actual dollar bill). But that didn't allow our government to spend recklessly, so they abandon it.

    I fear that it will eventually catch up with us. I remember a photo in our grade school history book about the extreme inflation in Germany in the 1930's...a man with a wheelbarrow full of paper money. How long until the U.S. ends up that way? I am afraid that they only thing saving us today is that all of those who hold U.S. bonds are afraid to try to cash them in, they know they have to play along with the hoax or the house of cards will collapse.

    Ken
  8. webbie

    webbie Seasoned Moderator Staff Member

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    The Dollar, The Dollar, The Dollar, The Dollar!

    it was not that long ago that Russian one day declared all the currency in the "field" to be worthless, which wiped out savings, pensions, etc. - The US Dollar hit a new historic low today again (almost every day) against the Euro. Why should Canada, Mexico or any other oil producer take dollars for their oil when they can get Euros?

    We are talking about a dollar that is now worth 65 cents against the Euro. At one time it was almost even. Same with the Canadian money, it is now worth 40% more in US dollars.

    So oil may have hardly went up in price! If the dollar was worth one Euro (as anticipated), then a gallon of oil would cost about $2.00. Not bad.

    Despite collusion on certain fronts, oil men running the government, etc.....the value of the currency is determined by a number of other factors - yes, including our government policy of borrowing more money.

    Think of it this way. If you had something for sale on eBay for $100, and you received an offer for 100 Euros for the same piece, which offer would you take? The 100 Euros are worth $150.

    It's not just the Gold Standard, it is the "faith" in the US government and economy and also the actions of the government (fiscal policy) which affect the dollar. The Euro is not based on gold either and it is doing fine.
  9. kilarney

    kilarney New Member

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    The dollar, at one time, was worth more than the Euro. That's what makes its fall so painful.
  10. webbie

    webbie Seasoned Moderator Staff Member

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    The article is really a good reason for folks buying either pellet stoves or pellet central heat to consider the fuel source! At $100 a ton wholesale, and the cost of drying and processing and bagging - the final price to the customer could really rise big time! And since the market for sawdust cannot be replaced by any other materials, lower oil or gas prices are unlikely to change things! Sure puts a new slant on things.

    Also, the reality is that burning pellets is not "recycling" or making use of a waste product, since there would be no case where the materials were thrown away. Everything is valuable today - and will end up in the hands of the highest bidder. At $100 a ton....that is $200 a cord wholesale for hardwood!

    If it turns out that wood is more valuable for other uses (building products, plastics, etc.) then burning it will only be done on a the level where one can grow and cut their own. I know this will be tough for the biomass plant planned to generate electricity which is being built near us. After all, if coal is available at a vastly lower price, how can wood compete?

    If oil and gas continue to rise, it will still be worth while to burn pellets - but OPEC has confirmed that it has plenty of supply, so for now the pellet market is still somewhat at the mercy of the oil men.
  11. Eric Johnson

    Eric Johnson Mod Emeritus

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    It may be even worse, Craig, depending on how the weight is calculated. I know some mills that buy green residue, but pay by what they call a "bone dry" ton, which is a calculation of the weight of the material after it reaches the target moisture content. But that's usually a negotiating point, and I can envision a scenario whereby the "bone dry" ton calculation gets thrown out the window. On an actual-weight basis, the pellet mill really takes a beating. The mill I'm most familiar with consumes 200,000 tons of raw material annually, but produces only 100,000 tons of dried pellets. A lot of the difference is water. I would assume that the $100/ton figure noted in the article is adjusted for moisture, but you never know in a hot market.

    Anybody with a manufacturing facility is absolutely dependent upon the flow of raw material. You don't shut down a paper mill employing 500 people because you don't want to pay the going rate for chips or logs or sawdust. And you don't cease production at a pellet mill simply because you don't like the price, either. You pay what you have to and hope you can pass it on to the consumer.
  12. webbie

    webbie Seasoned Moderator Staff Member

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    Well, actually - you may very well shut down the pellet mill, or more likely the customer(s) will stop buying the product! Paper sells for a lot higher of a price than pellets, and the value to us is higher, so whether we pay $4 or $9 for a ream is unlikely to make a big difference. But one of the things I have learned by following the conversation here is that many folks stop using their pellet stoves when pellets hit over a certain price. I suppose it is somewhat of a curve - that as the price rises from $200 up, at each level (225, 250, 275) a number of people drop out of the equation.

    Then, when you add into the equation that manufacturers like Harman. Quad, etc. are ready to provide and sell hundreds of millions of dollars worth of new appliances each year, the plot thickens. It is a very "mutually dependent" industry.....

    A big risk, IMHO. Possibly one that will pay off, but then again maybe not. If nothing else, it explains why certain companies like Jotul, HearthStone and others either make no pellet appliances or keep them as a small part of a bigger biz (regency, travis, Lennox).

    Corn has already gone off the charts, not we have wood. I wonder if there is really any biomass (grass, etc.) which can fill the need, because as we see the material is always going to go to the highest bidder. If the pet industry wants switchgrass for kitty litter and will pay more, then it will not be burned.

    Luckily for me, I am on the outside looking in. I give kudos to the folks investing in pellet plants because they are really going out on a limb. The American way. Sometimes it works, and sometimes it does not.
  13. Eric Johnson

    Eric Johnson Mod Emeritus

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    It is a big risk: they're relying on somebody else's technology (pellet stoves) to create the market for the fuel, with no control over how they work. If pellet stoves don't work as advertised, you go out of business through no fault of your own.

    Anyway, not to belabor the point about competition for the raw material, but here's a couple of recent news items that help explain the pressure on the resource:

    First U.S. Industrial BioOil Plant
    To be in Missouri

    Dynamotive Energy Systems Corporation and its subsidiary, Dynamotive USA, Inc., announced on December 5 its plans to invest $24 million to build the first fully commercial industrial biofuel plant in the U.S. The facility will be located in the southern Missouri town of Willow Springs. The company is in the final stages of completing its first commercial, second-generation biomass-to-biofuel plant in Guelph, Ontario. The Willow Springs plant will be of similar design.
    The Dynamotive process is fast pyrolysis where wood residues from nearby sawmills are converted to BioOil, a price-competitive replacement for No. 2 and No. 6 heating oil, widely used in industrial boilers and furnaces. By-products are light gases (such as hydrogen and carbon monoxide) that are cycled back in the process to serve as a fuel in the initial combustion chamber, and char that has high potential for use as a soil amendment to boost fertility.
    The first phase of the plant will consume roughly 200 dry tons of sawdust per day and yield 34,000 gallons (12.4 million gallons per year) of BioOil. Unlike ethanol from corn, Dynamotive’s fast pyrolysis requires no water and can use the light gases to meet virtually all of its internal energy needs. BioOil has been awarded Canada’s EcoLogo label, meaning that it meets stringent environmental criteria for industrial fuels as measured by Environment Canada’s Environmental Choice Program.

    Strength Seen
    In Pulp and Paper Markets

    In one of the few reports of good news in stumpage price markets to surface in recent months, the most recent issue of [a copyrighted newsletter] notes a steady, linear increase in the price of Northern bleached softwood kraft pulp since January 2006, amounting to 40 percent over those 24 months. The data reflects more strength in paper and board markets across North America, with the exception of newsprint.
    This report sheds light on the resistance of some paper companies to additional incentives for woody biomass markets, fearing they would lead to even faster rising prices for mill furnish (pulpwood). [The copyrighted newsletter] estimates that bio-energy and biofuels projects now in place represent a total of 15 million tons of wood consumption per year. The 35 new projects already announced would add another 5 million tons of consumption. As a comparison, the annual consumption of U.S. pulp mills is 24 million tons.
  14. BrotherBart

    BrotherBart Hearth.com LLC Mid-Atlantic Division Staff Member

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    Yep. There ain't no such thing as waste or by-products anymore. As we used to say about the Jimmy Dean sausage plant when it first opened in the 70's, they used everything out of the hog but the squeal.
  15. roninnb

    roninnb New Member

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    In the last 2 years, we have had 2 pulp mill closures and 1 saw mill closure. In the last year I've heard discussion of building pellet mills near those closed mills. There is an established our of work forestry industry in all 3 locations. I'm sure that the same conditions exist elsewhere across the continent.

    Increasing prices will increase the probability that new mills will be built. While the price my go up some, I expect new mills will be brought on-line and the prices will fluctuate but remain relatively stable.
  16. JustWood

    JustWood Minister of Fire

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    I'm quoting myself here after Erics last post. "wood residue in the woods or at mills will be nonexistent in the not to distant future " if the price of fossil fuels continues to climb.
  17. JustWood

    JustWood Minister of Fire

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    [quote author="roninnb" date="1204787532"]In the last 2 years, we have had 2 pulp mill closures and 1 saw mill closure. In the last year I've heard discussion of building pellet mills near those closed mills. There is an established our of work forestry industry in all 3 locations. I'm sure that the same conditions exist elsewhere across the continent.
    Increasing prices will increase the probability that new mills will be built. While the price my go up some, I expect new mills will be brought on-line and the prices will fluctuate but remain relatively stable.[/quote











    NO ONE will invest MILLIONS of dollars in a mill when the raw product (logs) is not available to be had. The market for hardwood saw logs right now and in the foreseeable future is NILL (0000000000). No SANE landowner is going to sell their timber for dunnage prices.
  18. webbie

    webbie Seasoned Moderator Staff Member

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    Dang, solar cells are looking better and better!

    The cost of sunlight is still not bought and sold on the open market!
  19. MainePellethead

    MainePellethead Minister of Fire

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    I agree with you Ron. Theres one mill in Northern Maine(Corinth) that has invested 4.5 million recently....output is at 100,000 tons with a capacity of 300,000 tons...yes the price has gone up...theres 2 more that are scheduled to go online soon in Strong Maine and another in Old Town Maine.....also one in Ashland Maine. Corinth originally was going to be sending 2/3 rds overseas...now...ALL its products will stay right here in New England. They'll find the saw dust...but at a price. Either that or the pellet quality will go down because of crappy fillers in it. Who would of thought 30 years ago or so we would be burning pellets? Maybe in a couple years we'll be burning horse crap or whatever...lol its a wonderful world we live in.....lol.
  20. pegdot

    pegdot New Member

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    I can see why the slow down in new housing would effect the softwood market but I'm a bit confused as to why that would have a big effect on hardwoods. It seems to me that if a logger has a crew and they aren't able to make a living cutting softwood that they'd switch to working hardwood if at all possible. Wouldn't that cause a certain amount of a glut in the hardwood market and drive the price down? What am I missing here?

    If there's been some drastic shift in the wood market I haven't seen any sign of it here. Finished lumber prices certainly aren't dropping as I'd expect them to if sales have really slowed to a great extent.

    I need more coffee..... :shut:
  21. Eric Johnson

    Eric Johnson Mod Emeritus

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    The hardwood market is affected by the housing slowdown as well. Consider all the flooring, cabinetry, furniture, molding, etc. that goes into new construction and renovation. That's all hardwood.

    Switching from cutting softwood to hardwood is not the problem. Finding a market for whatever you cut, is. And as the demand for all lumber products drops, so does production and with it goes the production of residue.

    There's not much of a direct relationship between the demand for logs and the price of lumber on the retail level. When you subtract the overhead from the retail price of a piece of lumber, there's not much left. So any glut in hardwood production is going to hurt the logger and not help the consumer very much. It doesn't help the sawmill very much, either. They pay a little less for logs to produce lumber that they can't sell.

    In the forest products industry, we call this a "periodic shakeout," i.e., market conditions that test the survival skills of everyone involved. It's a fact of life in any cyclical, commodity-based industry that doesn't enjoy the benefit of government subsidies. No fun for anyone.
  22. roninnb

    roninnb New Member

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    The one brand of hardwood pellets I was buying came from Ashland which is about 45 miles from where I buy my pellets. I liked them and only switched to oak ones because he didn't have any of the Ashland ones left.

    Just curious, is the pulp/paper mill in Old Town still operating?
  23. MainePellethead

    MainePellethead Minister of Fire

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    The mill itself shut down under Georgia Pacific(the old James river)....but the business is doing rather well...providing many more jobs than Georgia Pacific did....

    http://media.www.mainecampus.com/me...200610181201&sourcedomain=www.mainecampus.com

    http://www.forestbioproducts.umaine.edu/Red_Shield.php
  24. BubbRubb

    BubbRubb New Member

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    I just got my Spring Sale quote my dealer sends out every year. This year it looks like prices for late-March through April are $189/ton and $207/ton for May. This is within a couple of bucks of last year's prices. It goes up from there peaking at $247 in September for the last month listed. These are for Hamer's Hot Ones that I am really happy with. They burn a lot hotter and cleaner in my P-68 than the Energex I used this year.
    Of course, there is a disclaimer in the letter that says "These prices are based upon current freight charges quoted to us from the mill. If these charges change, your pricing will be adjusted accordingly." True to this guy's word, though, he has actually dropped the price when his prices have decreased.
  25. Don B

    Don B New Member

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    BubbRubb,
    A bit of good news, eh?
    Thanks
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