Wet weather, the China trade war and new commercial trucking laws could soon impact fiber supply and prices for some producers, if not already.
Pivoting and Planning
Switching from dry saw dust to green fiber is a possibility, but it’s an added cost. “We’re hauling 50 percent water to our plant, then,” Webb says. “That green material now has to go through another manufacturing process, a drum dryer, so it’s an added energy cost.”
Webb says fiber costs have gone up substantially from last year. He suggested an analysis of the U.S. EIA’s Monthly Densified Fuel Report data—which requires pellet producers to report feedstock purchases and average weighted cost for roundwood timber, sawmill residue, wood product manufacturing residue, and other residuals—but the EIA does not release data on a regional basis. Rather, each region’s data is added together and averaged, and that information is provided to the public. Being the pellet industry and fiber markets vary greatly by region, Pellet Mill Magazine made a request to learn more about regional feedstock pricing data, but EIA declined, citing reasons of confidentially and business sensitivities. The report is released about three months behind, so though no drastic price jumps have yet been reflected in the report, that could change in the coming months.
According to BioMaxx, costs for the company are up about 10 percent from a year ago. Now, the company is bringing in wood chips. “That that puts a different problem in front of us,” Watson says. “We’re running into the paper and chip board companies as competitors. Composite board manufacturers use a certain percentage of fiber, and they’re pulling from that same stream as paper, chip and pellet manufacturers. That’s where we have lost most of our fiber to in the past three months. .”
All of the aforementioned challenges combined have created bidding wars, Webb says. “Financially, pellet mills can’t source pellet fuel 250 miles away from the plant,” he says. “And even though you may have sawmills or a secondary manufacture close to your plant, someone else not even in this industry will now reach into those markets and bid for that raw material.”
Unfortunately, raising the price of hardwood pellets may be inevitable for some. “If the next tariff hits, we’ll have to,” Watson says.
Webb adds that because of the trade war driving costs up and availability down, the real crisis hitting pellet fuel manufacturer may be that homeowners have other heating options in their homes. “The reason most people put in a pellet heating unit in is to save money over that other heat source,” he says. “If they aren’t saving, they might back away.”
As to anything in the industry’s control that can be done, Webb says educating the consumer to buy pellets year-round could make a huge difference. “First, they’ll save money, typically,” he explains. “Purchasing pellets in April, May or July, they can get them at a lesser price than fall or winter, and then there won’t be that situation where they can’t get any.”
Consumers buying product year-round could help producers secure more raw material during this time of the year, a scenario that also weighs less on the timing and availability of trucks, he says.
As an industry, how can we achieve this? “We can’t change the retailer’s business model, but the consumer can,” Webb says. “If the consumer buys from a local retailer, we can spread out our ability. If we are out there moving more fuel month by month in the spring, summer and fall, we will try to run more. If it comes to a stop then we stop, and we don’t secure additional raw material that might be available right now, but not later.”
For now, with eyes on China and potential tariff increases, Watson says BioMaxx is working out its strategies. “You can’t have just one,” he adds. “You have to have two or three plans, because things change so fast.”
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