More bad news for pellet producers

[EatenByLimestone]

A WSJ article clued me in on their missed payment.

Wood pellet giant enters 2024 amid a financial crisis. So what went wrong at Enviva?

The company has seen its share price crash in recent months, prompting questions over whether it will survive or be broken up.

www.starnewsonline.com

 

[EbS-P]

Even if they go under someone will acquire their assets and keep up the charade of “green energy” for a while longer. The sun is setting. If you ever watched swamp loggers he sold everything off awhile ago when gas as really high

 

[bogieb]

I'm not worried about the producers that sell overseas. I do feel bad for their local employees and other businesses that have been helped by the plant being in operation (regardless if it is from workforce spending or company spending).

 

[peakbagger]

Do note, the pellets produced by those plants are not home grade premium pellets, they are commercial pellets.

The swamp loggers were major not suppliers into the commercial pellet business, they predominantly cut high value older growth hardwoods from areas that previously were not commercial to harvest due to the soil conditions. Commercial pellets are made from high rotation crop tree softwoods (or imported southern hardwoods like Eucalyptus) genetically bred to grow fast and be grown like a farm crop. I think the rotation is 10 to 20 years. It can slowly deplete the soil as the ash gets spread on crops in England where the pellets are burnt so the long term soil nutrients that normally are recycled are depleted.

England has just announced they are installing carbon capture on their wood fired power plants to keep the charade up longer. https://www.reuters.com/sustainabil...s-surround-biomass-based-removals-2023-10-23/

Unfortunately for all the shut down biomass power plants in Northern New England, there is no place to sequester CO2 so they cannot be retrofit for carbon capture. Trees grow faster down south, so I would not be surprised if some old coal plants get converted over like the English Drax plant.

 

[EbS-P]

Do note, the pellets produced by those plants are not home grade premium pellets, they are commercial pellets.

The swamp loggers were major not suppliers into the commercial pellet business, they predominantly cut high value older growth hardwoods from areas that previously were not commercial to harvest due to the soil conditions. Commercial pellets are made from high rotation crop tree softwoods (or imported southern hardwoods like Eucalyptus) genetically bred to grow fast and be grown like a farm crop. I think the rotation is 10 to 20 years. It can slowly deplete the soil as the ash gets spread on crops in England where the pellets are burnt so the long term soil nutrients that normally are recycled are depleted.

England has just announced they are installing carbon capture on their wood fired power plants to keep the charade up longer. https://www.reuters.com/sustainabil...s-surround-biomass-based-removals-2023-10-23/

Unfortunately for all the shut down biomass power plants in Northern New England, there is no place to sequester CO2 so they cannot be retrofit for carbon capture. Trees grow faster down south, so I would not be surprised if some old coal plants get converted over like the English Drax plant.

All true but I do think the southern timber industry will have an economic realignment. Paper mills are dwindling, eventually the pellet export market will shrink. We will need more power poles but that’s a small share. Housing/construction will stay robust as we are not back up to pre 2005 numbers. Inflation I think will shrink the average home size. At the end of the day I think we will find Enviva was miss managed and the owners are more at fault.

 

[peakbagger]

I am no way defending Enviva, my guess is that some developers built the company on unrealistic expectations of growth and demand using other people's money. Sure some investor may have required the developer have some "skin in the game" with some minor ownership stake but normally the developers can run to the exits quickly leaving the longer term investors holding the bag. It happens all the time and is even more accelerated with the new SPAC game.

The other scam is the developer sets up an entity to manage the business for the investors, the management group takes a cut of every dollar going into and out of the door. There is lot of cash involved with a commodity business like pellets. The management company could care less if the business make a profit as long as its keep limping along as their cut is guaranteed profti or loss. Usually the management company owned by the original developer, makes sure the numbers look rosy until the developer has sold out his initial stake. At that point the developer has made his money and is off to other projects while the "brother in law" runs the management group and everything they can skim off is "creme". Next thing to do when the books look really bad is to scream in the press that the markets have changed and they need a bail out. The local suppliers and workers join in with the screaming and if the firm is lucky the government hands them a bail out and the scam continues. If not whomever owns the company, usually investors, take a write off and the firm is resold at auction for scrap and someone (occasionally the original developer) comes in on a white horse and buys it cheap and starts the scam again. Or someone like Lynn Tilton rides in https://www.forbes.com/sites/elizah...ine-after-dozens-of-lawsuits/?sh=564df8fb4226 she did that up in Old Town Maine to pulp and papermill.

Southern paper mills are different than the older Northern Mills, the northern mills were somewhat sustainable as they predominantly burned the left overs from the sawmill industry. Trees were grown to make lumber and the left overs went into pulp. At some point companies figured out that down south, trees grew fast enough that if the land was cheap, they could skip the lumber and just make pulp out of ever smaller trees. The northern mills lost most of the business to the southern US mills until industry figured out they could go to South America and Indonesia and cut virgin forests to pay the costs to build the mills for low cost as they did not need to comply with environmental standards and then eventually start growing fast rotation "weed" trees on the former forest land to run the mills long term.

 

[mellow]

Another article on this: https://coastalreview.org/2024/01/amid-losses-wood-pellet-company-enviva-at-risk-of-default/

Stock is now below $1.00: https://finance.yahoo.com/news/enviva-receives-continued-listing-standard-213000009.html

 

[peakbagger]

I would not bet on the equipment and operations disappearing, my guess is either a prepackaged bankruptcy or some other entity possibly some of the original investors who got out early coming buying its at an action to drop the book value and restarting.

 

[mellow]

Getting ready to file for chapter 11: https://www.msn.com/en-us/money/com...a-prepares-to-file-for-bankruptcy/ar-BB1ieBrI

What I find interesting as I pay almost $7 bag for pellets:

Enviva's third-quarter results showed an $85 million loss, up from $18.3 million in the third-quarter 2022. The company's financial woes are largely due to collapsing prices for wood pellets, meaning the company is making less money even though it's selling more pellets than ever before. With Enviva locked into several long-term contracts with customers at low prices, losses could continue to mount unless the company is able to renegotiate the agreements.

 

[jp99]

And they have filed for bankruptcy: https://www.wsj.com/articles/wood-p...sr89zuywwzo&reflink=desktopwebshare_permalink

Enviva was on the hook to pay $296.3 million for 800,000 metric tons of wood pellets that would only be worth $156.9 million on the open market, according to a November securities filing. The company also said at the time that it expected another $140 million in losses over the next two years based on the prices at the time for future deliveries of pellets. It had roughly $1.8 billion of debt as of last September.