Article on Pellet "Shortage"
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"Reading between the lines" of this article, all it really says to me is that the pellet fuel industry has learned from the oil industry on how to minimize market competition and maximize corporate profiteering, at the expense of the consumer.
Despite the fact that there has been record demand in each of the past 5 years as a result of high oil and propane costs and / or unusually cold winter weather, the comment that "pellet producers are running at 50 - 60% operating capacity because that's all the market demands of us" doesn't pass the straight face test.
I also call BS on the theory that increased numbers of pellet plants and the resulting increased production capacity is "bad for everyone" as the article connotes. They cleverly neglected to mention the impact of North American pellet exports doubling from 2012 to 2013, from 1.6 million to 3.2 million short tons, and what the resulting effect of that is on domestic pellet supply and demand market forces. http://www.eia.gov/todayinenergy/detail.cfm?id=16391
Sounds to me like the pellet fuel industry is just taking a page out of the Koch brothers playbook on how to spin more profits at the consumers expense.
End of my anti - corporatist rant.
Despite the fact that there has been record demand in each of the past 5 years as a result of high oil and propane costs and / or unusually cold winter weather, the comment that "pellet producers are running at 50 - 60% operating capacity because that's all the market demands of us" doesn't pass the straight face test.
I also call BS on the theory that increased numbers of pellet plants and the resulting increased production capacity is "bad for everyone" as the article connotes. They cleverly neglected to mention the impact of North American pellet exports doubling from 2012 to 2013, from 1.6 million to 3.2 million short tons, and what the resulting effect of that is on domestic pellet supply and demand market forces. http://www.eia.gov/todayinenergy/detail.cfm?id=16391
Sounds to me like the pellet fuel industry is just taking a page out of the Koch brothers playbook on how to spin more profits at the consumers expense.
End of my anti - corporatist rant.
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RAVinMetrowest
New Member
Written and commented on in 2014, therefore not really relavent to today's conditions. Wish they would update the article.
Old Spartan
Burning Hunk
Without the Corporate structure. IE Capitalists there would not even be a pellet industry. It takes millions to build a plant and millions more to get it up and running.
I doubt net margins exceed 10%. Paltry when considering the money invested to risk ratio.
I doubt net margins exceed 10%. Paltry when considering the money invested to risk ratio.
A lot depends on the area of the country you're in. I can get multiple tons for 200-225 right now
Husky
Feeling the Heat
Buying a whole season in the summer is great if you can afford to drop that much money at one time but reality is that some can not afford to buy 4-6 ton in one shot. I don't see why an industry that has been around for such a long time has not figured out how to ramp up fast enough to relieve a shortage when they start to see demand. If they are only running at 50-60% capacity then they should be able to meet demand within 30 days. I think this is all about maximizing profit at the expense of the consumer. More plants cause more competition and will force pellet plants to compete for customers which will push prices down. This doesn't mean that the plants won't make money but will keep their profits at a competitive percentage amongst each other.
Never happen. Congressmen and Senators don't heat with pellets. They can afford not to, on your dime...... Get real.
Huh? 2014 was just a few months ago. What parts of this article aren't relevant anymore since as you say it, it was written in 2014?
I'll disagree with you on that statement.
It is the same product, it may not be the low ash content but it is the same size in physical dimensions, if, it comes from a pellet extruder simply because it's extremely costly and time consuming to change out the internals in a ring extruder. Now, if you are referring to briquetting, thats a different story but briquettes cant be run in a pellet stove anyway. Most of the exporting extruders are running ring machines and exporting the same stuff thats being consumed in domestic stoves.
I will agree with you on your prior statement, most people by nature always wait until the last minute and then go nutz. It's the 'chicken little' (no offense) attitude not only on stoves but fuel and I agree, a bit of foresight will eliminate the 'assumed pellet shortage'... I read numerous threads on here of posters whining about no pellets when they could have bought or pre-bought enough last year to last until this spring. Makes no sense to me. I always stock in more than what I anticipate needing, this year is no exception.
Basically what I got from this article is that the pellet makers are going to be reactive in the way they supply the market. Preordering is I think and from what the article describes, the only way from having your own personal pellet shortage. I have no more doubts now. I will preorder more and hump the rest if I need to. This season I did the opposite, preordered less and humped more. Everyday is trainning day.
For sure, legislators are cutting smokey cigar room deals with the southern and mid-Atlantic mills to keep export pellet money flowing their way. (broken link removed)
I'm obviously no economist or biomass expert, but when the US goes from 80% of pellet production going to domestic use in 2008, to the point where we're now doubling export tonnage year to year from large mill exporters, that's got to have a direction connection to upward pressure on wood fiber source product availability, and the resultant cost increases for pellet stove consumer use.
As the woodpellets.com article linked below noted, "these large mills are competing for some of the same raw materials used to produce heating pellets – thereby reducing the amount of wood fiber available to produce regular heating pellets. And if you’re a banker looking to invest in this green energy sector, which mill are you going to lend money to help expand their production? The mill with a ten year supply agreement to a German utility – or the mill that sells pellets to a bunch of mom-and-pop stove shops?"
I agree that at least part of the answer for pellet stove burners is to pre-order in bulk, which is what I've done since 2006, the last year as I recall that good quality low cost pellets were widely available, without the 'manufactured shortages' that we've seen since then. I'm fortunate that I have the space to store them and the financial capability to fork out a $1,000 cash for a pre-season order from my local non - Big Box pellet supplier.
But by keeping operating capacity down to 50 - 60%, and not being willing to stockpile their product, nor expand their wholesale distribution base to help address the Big Box store's predatory pricing strategy discussed in the article link below, pellet manufacturers seem to be exploiting the consumer who either can't afford the pre-season cash outlay, or don't have the storage space for multiple tons of pellets, or those who just by human nature 'wait until the last minute'.
Here's a link to an insightful article that highlights many of these points. http://www.woodpellets.com/blog/2014/03/24/10-reasons-for-the-2014-wood-pellet-shortage/
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Old Spartan
Burning Hunk
I think some people misunderstand "capacity" in a manufacturing setting.
A capacity of 120,000 ton is an annual figure. 10,000 ton / month or 3300 / month, 110 per day. Once today is yesterday that capacity is lost.
If I am a manufacturer I am not going to operate at capacity unless there is an immediate market or the less than immediate market is offset by higher margins so that my cost of money and risk of inventory carry is well covered.
Based on consumer price sensitivity displayed here, and I am as guilty as everyone else, very few are willing to pay a few additional; dollars to cover those costs.
In the article cited above:
Items one - four are simple market pressures, They are sales avenues that compete for the product we use to heat our homes. NO pellet manufacturer has an obligation or duty to sell for less to keep the American consumer happy. The shareholder / owner has claim to that money.
Item 5 is self inflicted. The American consumer can simply buy at a shop other than the BB thus creating a cash flow to Ma and Pa albeit at a cost to that consumers wallet. Not many are willing to do so. The predatory subsidy as it is called benefits the consumer's immediate needs. The consumer makes that decision to "save" at a cost of difficult and more expensive aquisition later in the season.
Six and seven are more normal market pressures. Market pressures are past of commercial life.
Eight illustrates a capital risk. If the profit is not sufficient to offset the risk the risk is not undertaken.
Nine is again a consumer issue, self inflicted on the mass by individual action.
Ten -- More market forces.
The majority of these factors exist in every industry to some extent. They are not peculiar to pellets and they will only be overcome by margins sufficient to satisfy the entire supply chain.
A capacity of 120,000 ton is an annual figure. 10,000 ton / month or 3300 / month, 110 per day. Once today is yesterday that capacity is lost.
If I am a manufacturer I am not going to operate at capacity unless there is an immediate market or the less than immediate market is offset by higher margins so that my cost of money and risk of inventory carry is well covered.
Based on consumer price sensitivity displayed here, and I am as guilty as everyone else, very few are willing to pay a few additional; dollars to cover those costs.
In the article cited above:
Items one - four are simple market pressures, They are sales avenues that compete for the product we use to heat our homes. NO pellet manufacturer has an obligation or duty to sell for less to keep the American consumer happy. The shareholder / owner has claim to that money.
Item 5 is self inflicted. The American consumer can simply buy at a shop other than the BB thus creating a cash flow to Ma and Pa albeit at a cost to that consumers wallet. Not many are willing to do so. The predatory subsidy as it is called benefits the consumer's immediate needs. The consumer makes that decision to "save" at a cost of difficult and more expensive aquisition later in the season.
Six and seven are more normal market pressures. Market pressures are past of commercial life.
Eight illustrates a capital risk. If the profit is not sufficient to offset the risk the risk is not undertaken.
Nine is again a consumer issue, self inflicted on the mass by individual action.
Ten -- More market forces.
The majority of these factors exist in every industry to some extent. They are not peculiar to pellets and they will only be overcome by margins sufficient to satisfy the entire supply chain.
Getting congress involved in something is like getting the Mafia involved. They will want their cut too.
GeHmTS
Feeling the Heat
Pete Zahria
Minister of Fire
I am a small seller of pellets, about 120 ton this yr. Could have sold another 50 ton, but no supply. I could not get any supply after Nov 7. It seems that once winter comes they don't know you any longer as they are busy supplying there big contract accounts. I was told to buy more in summer,but a lot Maine people just have not saved up the money yet to buy their full supply. It's a catch 22, as nobody wants to lay out the money to hold them for three or four months. Looking for answers.
Called a piggy bank.
Last year when I bought 6 ton, I charged them on my Cabelas card (like I do about everything else) to accrue points for firearms, my piggy bank of sorts. I still have just under a ton in the barn so no shortage here, in fact, the local TSC has at least 30 ton in the back lot.
GeHmTS
Feeling the Heat
it should be call a "pellet stockpile", shortage is using the wrong language and is fear mongering.
Pete Zahria
Minister of Fire
The answer, for you, is obvious.
If you want to sell 150-200 tons, you have to get them when you can.
As you have found out, for the last couple of years,
you can't order a truckload, when you run out, and need another..
I know, it's more money, tied up for a little while, and it takes a lot of room.
But there is no other answer...
That's the nature of the business.
BTW
I would NEVER take money to "hold" them either..
Recipe for disaster, for you. You don't need the added headaches...
Tell them to hang on to the money until they can pay and receive the product.
Bioburner
Moderator
Thats what the original pellets were here in 83 when the first stoves started being sold.
Everyone wants to make the money without any hard investment. A 120 a year dealer is just an order taker, middle man if you will. When supply lines are stressed small order takers loose out to the bigger players that have signed contracts for 120 tons a week. Increase your orders. Approach your customers earlier and more often. Make it happen instead of hope it happens
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