When is the price of pellets going to drop?

[Old Spartan]

Domestic pellet price has little to do with European anything. Exported pellets are a whole different ball of wax .

Every pellet exported is a pellet not available to the domestic market. Therefore the export to Europe exerts upward pressure on domestic pricing.

The USA long ago ceased to operate in an economic vacuum. It is all one big ball of wax today.

 

[woodmakesheat]

Interesting article posted here previously about domestic use versus export of pellets.

http://www.biomassmagazine.com/articles/11400/all-that-glitters

 

[JustWood]

Every pellet exported is a pellet not available to the domestic market. Therefore the export to Europe exerts upward pressure on domestic pricing.

The USA long ago ceased to operate in an economic vacuum. It is all one big ball of wax today.

Exported pellets are mostly industrial grade pellets for power generation sourced from very low grade wood native to coastal regions. Pines, willows, cottonwoods, elms,cypress, palm, etc. I woodn't be surprised if demolition wood or hurricane clean up ends up in these pellets A lot of crap wood going into a crap pellet to be burnt at high temps with massive air infusion for a clean burn. There is little if any market for this type of pellet in North America. I'm not even sure the commercial pellet furnaces/boilers on the US market wood use these pellets efficiently.

 

[Old Spartan]

Interesting article posted here previously about domestic use versus export of pellets.

http://www.biomassmagazine.com/articles/11400/all-that-glitters

Yes, that is a good article.

The key section is about halfway down and discusses the "breakout year" (last year). What it actually reveals is the domestic market is weather dependent because pellets are primarily a heating fuel in the USA as opposed to being a power plant fuel in Europe. This makes Europe not only a more reliable market but also places a price floor on the domestic market.

Those export curves become manageable when the dollars are right. Unfortunately for us the export contracts are usually longer term as opposed to being spot market which is what USA pellet market amounts to. So even when the weather is favorable to domestic sales the long term European contracts need be satisfied.

No matter how we cut it the price "floor" will be determined by exports for the foreseeable future, (until the EU nations remove policy incentives).

 

[JustWood]

Yes, that is a good article.

The key section is about halfway down and discusses the "breakout year" (last year). What it actually reveals is the domestic market is weather dependent because pellets are primarily a heating fuel in the USA as opposed to being a power plant fuel in Europe. This makes Europe not only a more reliable market but also places a price floor on the domestic market.

Those export curves become manageable when the dollars are right. Unfortunately for us the export contracts are usually longer term as opposed to being spot market which is what USA pellet market amounts to. So even when the weather is favorable to domestic sales the long term European contracts need be satisfied.

No matter how we cut it the price "floor" will be determined by exports for the foreseeable future, (until the EU nations remove policy incentives).

Domestic price floor will be determined by cost of production/shipping.
Comparing export and domestic grade pellets is like comparing bunker oil and home heating oil.

 

[Old Spartan]

Domestic price floor will be determined by cost of production/shipping.
Comparing export and domestic grade pellets is like comparing bunker oil and home heating oil.

The same machinery makes both. It can only make one at a time however. The one it makes will be determined by a given mills profit potential for a given pellet (as well as managements ability to navigate the export hurdles).

It is not at all like home heating and bunker oil which require different apparatus and processes to refine.

BUT ,,,, You are correct, The cost of pellets will always be determined by cost inputs. The value of export is one of those inputs. Today it is perhaps the one driving production and future capacity.

 

[JustWood]

The same machinery makes both. It can only make one at a time however. The one it makes will be determined by a given mills profit potential for a given pellet (as well as managements ability to navigate the export hurdles).

It is not at all like home heating and bunker oil which require different apparatus and processes to refine.

BUT ,,,, You are correct, The cost of pellets will always be determined by cost inputs. The value of export is one of those inputs. Today it is perhaps the one driving production and future capacity.

Different input materials and grade of final product.
Industrial pellets will likely never compete with domestically made/marketed/sold pellets unless stove makers slam dunk a killer multifuel. Pellet boilers may become a marketing target if large numbers come on line.
Most large export mills are foreign utility owned with no interest in supplying a domestic grade pellet.

 

[tony58]

Price will go down when the mounds of sawdust turns into mountains of sawdust at the mills...

 

[JustWood]

Price will go down when the mounds of sawdust turns into mountains of sawdust at the mills...

Exactly ! This will take decreases in industrial lumber prices and an increase in home building.

 

[Old Spartan]

Exactly ! This will take decreases in industrial lumber prices and an increase in home building.

Both of which are unlikely in the foreseeable future.

In the meantime Europe's demand for imports will have increased from 6 Metric tons to about 14 Metric tons between 2013 and the end of 2015.

2/3 of current US capacity is export driven. Nearly 85% of planned increased capacity is earmarked for export. European growth is projected at over a million ton annually, some claim they will be nearer three million annually by 2017.

When will prices drop ???

Probably somewhere near 2027 when current European policy incentives that favor pellets over coal are set to expire. Dax an an example is already planning a reversion top Coal at about that time (assuming expected technological advances allow for it)

Of course it is also possible that localized "cottage" industry of pellet processors, or even co-ops, will come to the forefront again. That might hold or reduce pricing because of potential transport advantages. In my area a co-op has quickly taken a large market share of propane sales and forced pricing down substantially. They are now starting to make inroads in home heating oil. Perhaps they and others will take on pellets in the future.

Don't get me wrong, I am not trying to be argumentive. i have just seen this process complete a cycle in other industries and it is ALWAYS the American consumer who comes out on the short end.

 

[JustWood]

Both of which are unlikely in the foreseeable future.


In the meantime Europe's demand for imports will have increased from 6 Metric tons to about 14 Metric tons between 2013 and the end of 2015.

2/3 of current US capacity is export driven. Nearly 85% of planned increased capacity is earmarked for export. European growth is projected at over a million ton annually, some claim they will be nearer three million annually by 2017.

When will prices drop ???

Probably somewhere near 2027 when current European policy incentives that favor pellets over coal are set to expire. Dax an an example is already planning a reversion top Coal at about that time (assuming expected technological advances allow for it)

Of course it is also possible that localized "cottage" industry of pellet processors, or even co-ops, will come to the forefront again. That might hold or reduce pricing because of potential transport advantages. In my area a co-op has quickly taken a large market share of propane sales and forced pricing down substantially. They are now starting to make inroads in home heating oil. Perhaps they and others will take on pellets in the future.

Don't get me wrong, I am not trying to be argumentive. i have just seen this process complete a cycle in other industries and it is ALWAYS the American consumer who comes out on the short end.

Housing market IMHO will be a wash for some time.
Industrial lumber prices in most regions have dropped $50-$100 MBF just in the last couple months following oil down as much of the material was used in crane mat production for exploration/production purposes. I don't see lumber prices dropping to where they were 2 years ago because utilities are still demanding mats for repair of existing lines and new pipelines just not at levels experienced 6 months ago.
Pellet prices should remain stable at current levels. Current weather conditions are very favorable for the building of sawmill decks for spring breakup which is positive for future pellet price pullbacks. The declining price of oil is also favorable.
OS , you have a good grasp of how global commodity markets work but domestic and export pellets are just 2 different animals yet at times (pending market conditions) somewhat similar .Over time and as the market matures I would speculate that they will become more similar due to raw material sourcing and transportation logistics.

 

[camdids]

Not everything - here in Maine $20 will still get a half gallon of Allen's Coffee Brandy, and it comes with 2 fat girls to keep ya warm all night .....................

Ooh!! Nice

 

[NYCPrincess]

Found this thread very interesting. I don't have a pellet stove, but when looking for an envi block distributor, I found on one's website that pellet inventory was limited to existing customers only due to the high demand and shortage. Got my wood stove this year and we considered a pellet stove. Right now can't help but feel we dodged a bullet. Good luck guys.

 

[3650]

Just imagine what they are going to charge when fuel prices skyrocket?

 

[F4jock]

Actually the price of pellets will not drop because the Saudis secretly bought all the pellet mills and, as they've lowered the price of oil, they've raised the price of pellets to compensate.

 

[Melissa220]

It did not even occur to me to compare the current per gallon price for oil to the $4.98/bag I paid. DUH I just bought more pellets as the first week in February the weather gurus are predicting -16 degrees or -14 degrees over two nights and pellets are very tight to non-existent where I am. 120 gallons of oil at $2.19 is $263. The one ton equivalent in pellets at $4.98 per bag is $249. Still, burning pellets, although more labor intensive, is still a more steady warmth and costs less in electricity than for my oil burner to keep turning on and off.

 

[F4jock]

It did not even occur to me to compare the current per gallon price for oil to the $4.98/bag I paid. DUH I just bought more pellets as the first week in February the weather gurus are predicting -16 degrees or -14 degrees over two nights and pellets are very tight to non-existent where I am. 120 gallons of oil at $2.19 is $263. The one ton equivalent in pellets at $4.98 per bag is $249. Still, burning pellets, although more labor intensive, is still a more steady warmth and costs less in electricity than for my oil burner to keep turning on and off.

Doubtful. Compare the BTU.

 

[Melissa220]

F4jock my oil burner is ancient, and I don't have the thousands to replace it. Last cleaning I think it was running at about 72% efficiency. I have hot water baseboard and I've been through many winters before the pellet stove of cycles of cold/warm/cold/warm while the room heated and then cooled using the baseboard. My pellet stove also heats both my upstairs and my downstairs without using oil. With straight oil use, I was having to block off the upstairs to keep the downstairs heat downstairs and turn on the heat upstairs.

 

[F4jock]

F4jock my oil burner is ancient, and I don't have the thousands to replace it. Last cleaning I think it was running at about 72% efficiency. I have hot water baseboard and I've been through many winters before the pellet stove of cycles of cold/warm/cold/warm while the room heated and then cooled using the baseboard. My pellet stove also heats both my upstairs and my downstairs without using oil. With straight oil use, I was having to block off the upstairs to keep the downstairs heat downstairs and turn on the heat upstairs.

Sorry about that. My HWBB is toasty with no problems.

 

[adam6979]

My two cents, for what it is worth, is that yes oil is low right now but be prepared, once it goes back up (sometime next year) we will see gas prices over $5 per gallon. People say that's not possible but in the UK gas is over $9 per gallon and they do just fine.... believe me the oil companies have lost too much business to propane, ng, and pellets.... they know exactly what they are doing and will just raise the price right back up once they are done putting the other guys out of business. Most of your pellet suppliers and dealers are small business operations that cannot sustain months with little profits... the oil companies can do it for years.

 

[adam6979]

Around here, thats the wife's job.

Got my wife a little push cart from Amazon - now she can bring in 5 bags at once, no complaints since buying that cart which she now uses all the time for groceries and what not....

 

[F4jock]

My two cents, for what it is worth, is that yes oil is low right now but be prepared, once it goes back up (sometime next year) we will see gas prices over $5 per gallon. People say that's not possible but in the UK gas is over $9 per gallon and they do just fine.... believe me the oil companies have lost too much business to propane, ng, and pellets.... they know exactly what they are doing and will just raise the price right back up once they are done putting the other guys out of business. Most of your pellet suppliers and dealers are small business operations that cannot sustain months with little profits... the oil companies can do it for years.

Gas (Benzin) in Europe has been at that level for years. They do "allright?" Kinda, but they are totally or largely dependent on outside sources for energy etc and the average Joe rides a bike around town and pays sky-high prices for everything. I don't want the US to do "allright" I want us to be exemplary.

As for fuel prices, everyone complains about them and accuses oil companies of all sorts of conspiracies but have no idea what it takes to produce the product. They just complain. Complain when the price is high, complain when the price goes lower. I guess people just like to complain. Whatever the price and availability of a product is someone always knows what it SHOULD be, don't they? Or why it isn't.

 

[Old Spartan]

My two cents, for what it is worth, is that yes oil is low right now but be prepared, once it goes back up (sometime next year) we will see gas prices over $5 per gallon. People say that's not possible but in the UK gas is over $9 per gallon and they do just fine.... believe me the oil companies have lost too much business to propane, ng, and pellets.... they know exactly what they are doing and will just raise the price right back up once they are done putting the other guys out of business. Most of your pellet suppliers and dealers are small business operations that cannot sustain months with little profits... the oil companies can do it for years.

For every litre of unleaded petrol bought in the UK, 61 per cent of the pump price goes to the government as fuel duty and VAT along with 59 per cent of every litre of diesel. (Nick Collins http://www.telegraph.co.uk/news/ukn...68970/British-fuel-tax-highest-in-Europe.html)

To compare prices among Nations is apples and oranges. Oil companies are not the driving force in final fuel prices. Governments are. In most Nations the tax take is far greater than the company take at any given distribution level.

With that said ...... I will change to dino as soon as pellet btu cost exceeds the cost of dino btu's. Nothing romantic about one fuel over the for me, strictly and $$ and cents decision.

For ambiance and cuddling with the lady I use the fireplace regardless of heating fuel.

 

[F4jock]

For every litre of unleaded petrol bought in the UK, 61 per cent of the pump price goes to the government as fuel duty and VAT along with 59 per cent of every litre of diesel. (Nick Collins http://www.telegraph.co.uk/news/ukn...68970/British-fuel-tax-highest-in-Europe.html)

To compare prices among Nations is apples and oranges. Oil companies are not the driving force in final fuel prices. Governments are. In most Nations the tax take is far greater than the company take at any given distribution level.

With that said ...... I will change to dino as soon as pellet btu cost exceeds the cost of dino btu's. Nothing romantic about one fuel over the for me, strictly and $$ and cents decision.

For ambiance and cuddling with the lady I use the fireplace regardless of heating fuel.

Hear hear!!