Sluggish demand for wood pellets (Newspaper article)

  • Active since 1995, Hearth.com is THE place on the internet for free information and advice about wood stoves, pellet stoves and other energy saving equipment.

    We strive to provide opinions, articles, discussions and history related to Hearth Products and in a more general sense, energy issues.

    We promote the EFFICIENT, RESPONSIBLE, CLEAN and SAFE use of all fuels, whether renewable or fossil.
  • Super Cedar firestarters 30% discount Use code Hearth2024 Click here
Status
Not open for further replies.

coloradan

New Member
Hearth Supporter
Dec 9, 2009
81
South Central PA
I just read an interesting article about the sluggish sales of wood pellets. Thought I'd share it with everyone here!

(broken link removed to http://www.skyhidailynews.com/article/20100204/NEWS/100209932/1079&ParentProfile=1067)


Kremmling, Walden wood pellet plants struggle with sluggish demand

By Reid Armstrong

Sky-Hi Daily News

Six months ago, Gov. Bill Ritter visited the Confluence Energy wood pellet plant in Kremmling, bringing attention to what he hoped would become a major player in the nation's “New Energy Economy” and the next-best solution to Colorado's beetle kill crisis.

Today, the plant in Kremmling, like many across the nation, are struggling just to stay alive, according to founder and CEO Mark Mathis.

“There is a glut in the pellet industry nationwide,” Mathis said. “Very few — if any — plants are running. We are at one-third speed and there's only one other currently running. It's not just Colorado, it's nationwide.”

Shelves at retail stores are stocked, but the product is not moving. The storage yards at the plants are at capacity. Enough 40-pound bags of wood pellets were produced at Colorado's two plants last year to serve the region for the next four years. If the market doesn't grow quickly, more people are going to lose jobs and plants are going to close permanently.

Historically, the Colorado region has used 50,000-60,000 tons of the product per year, Mathis said. The two plants combined are producing 200,000 tons annually.

“Walden opened at the same time as us and there is simply not enough demand in the region to justify two large facilities,” Mathis said. “The upshot is that we're the only viable plant in the region right now.”

Production at Rocky Mountain Pellets in Walden recently shut down.

“We are still going through and selling off what inventory we've already built,” said John Frink, owner/vice-president of RMP. “We have a good 20 (employees) coming in a day.”

At full run, the plant normally employees about 50 people, Frink said.

The hope, it seems, lies overseas. Wood pellets — cylinders of dried, shredded wood — can be burned alongside coal in existing power plants and are a less-expensive way to generate electricity than windmills or solar panels.

The process of burning the pellets is generally considered to be carbon neutral since trees would emit the carbon naturally when they die and decompose, allowing pellets to meet the European Union's stringent renewable energy source requirements.

As Europe's demand for wood pellets increases, the United States has become a major exporter of renewable energy. New pellet plants have opened across the southeastern United States, with factories sprouting in Florida, Alabama and Arkansas in the past year, according to an article published in the Wall Street Journal last July.

The capacity of the three newest plants in the Southeast more than doubled the pellet production in the United States in a single year.

Prior to 2008, there were about 40 pellet factories nationally, producing about 900,000 tons a year, primarily for heating homes. The three new plants in the Southeast alone have the capacity to producing 1.25 million tons of pellets per year. Additionally, five new plants have gone up in the Rocky Mountain region in the last four years, Mathis said.

The United States isn't the only country jumping on the pellet production bandwagon. Australia, New Zealand, Argentina, Vietnam, Canada and South Africa are also exporting pellets to Europe.

(continued in next post below...)
 
(continued...)

Flat demand
But, here at home, demand has flatlined. Pellets are more expensive than coal, and unless states start increasing regulations for renewable energy sources, demand isn't likely to increase at home anytime soon.

Tom Pierro, owner of Legacy Building Specialties in Granby, has been stocking his shop with high-end pellet stoves and products for the last few years. Offering a delivery service that forklifts 1-ton pallets directly into customers' garages, Pierro thought he would see a lot of business in the winter months, given that he's the only local retail outfit to stock pellets.

Not so. He has a steady 25-30 customers for the pellets, but only sells a handful of stoves and hasn't seen much of an increase since he started supplying the product.

Pierro had a hard time even getting one of the local plants to stock his store.

“Initially, neither wanted to sell locally because they had so much business back east,” he said. Eventually he got a call back from Rocky Mountain Pellets in Walden and now he stocks their product, although both plants seem more interested in his business these days, he said.

The cascading combination of factors that has flooded the market with pellets has left plants like Walden and Kremmling high and dry.

The collapse of the energy market from $147-per-barrel oil 18 months ago down to $40-per-barrel oil in 2009 took the focus off alternative fuels, Mathis said.

“Fifteen months ago, you couldn't open the paper without hearing about global warming,” he said. “The pellet market is driven by economics. The economy crashed and burned. People can't afford to spend $3,000 to $4,000 to put a new stove in their house when they're wondering if they'll even have a job tomorrow.”

Despite that, Mathis remains optimistic.

Of the 34 people he employed at the peak of production, Mathis said Confluence has only laid off about seven employees. The plant is still running at about a third of its capacity, which is better than some pellet factories are doing.

“We'll get through it,” he said. “We have jobs to protect. We understand that people have car payments and mortgages. We're doing everything we can to stay afloat, and that includes me not taking a paycheck until we get our heads above water.”

Frink said the Walden plant's staff is working hard to develop new products, from landscape materials to animal bedding, and new uses for the pine beetle kill.

“Our goal is to use the resource,” he said. “We hope to get through as many trees as possible. It's a huge resource this state has and we don't want to see it go to waste.”

They are stockpiling trees with hopes of launching back into production as early as March or April.

Mathis said his focus is on growing the market.

“We need to rally support and find greater, larger, industrial applications for renewable energy,” he said.

And, if it comes down to it, Mathis said he'll personally walk into the region's Home Depot stores and ask managers why they are importing pellets from out-of-state rather than carrying a local product to reduce their carbon footprint.

“We need to be as aggressive as we can to make sure we earn that business. We're trying to drive loyalty, to create jobs here in Colorado and to use the resource that's available out our back door.”

— Reid Armstrong can be reached at 970-887-3334 ext. 19610 or [email protected].
 
bring the price back down and they will sell like hotcakes. 5.00 plus a bag is way to much!
 
i agree 3.49 a bag and it'll be "katie bar the door". this is what happens when greedy fat cats dont wanna lose their margins. they could sell them for 125 per ton and still make a huge profit. !
 
I totally agree. Basic Supply & Demand
Bring down the high prices and the product will move again.
 
It will be kind of interesting to see where pellet prices go. We just had a pellet mill open up here in VT and they are selling pellets for $239/ton. I have tried them and for that price it's a good deal. Initially bought the stove when oil prices were around $4/gal for heating oil. I was looking for an option over oil to help save $$. When oil prices crashed and came down to $1.95/gal I was still breaking even burning pellets over oil. Right now oil is at $2.65/ gal I am saving about $400/yr which is nice. I have started to change my thinking though regarding the pellet stove. It's nice not to have to worry about what the oil prices are going to be. I buy 4 tons in the spring and put them in my garage and have them ready for the winter. Also, when I was burning oil I never let the therm go over 68 and only when we were at home. Now with the pellet stove I can keep a more constant warmer temp in the house without worrying about how many pellets I am going through because I have plenty.

I guess what it boils down to is I like not having to worry about oil. Last year demand was up and supply was down. This year supply is up and demand is down, so who knows?
 
I agree the price of pellets must come down. The glut is also from pallet pigs who had horded several year worth and have not bought any this year. Supply and demand rules, however oil has doped around 70 bucks a barrel. Pellet producers may have a dry spell until demand picks up again.
 
Hoverfly said:
I agree the price of pellets must come down. The glut is also from pallet pigs who had horded several year worth and have not bought any this year. Supply and demand rules, however oil has doped around 70 bucks a barrel. Pellet producers may have a dry spell until demand picks up again.

If there was all that multi year hoarding going on please explain the 2008 pellets that are sitting at the Wal-Mart one and a half miles from me?
 
as far as pellet price goes when pellets spiked up, they said with oil bieng so high there inputs were high for fuel and so on. when oil came down inputs should have come down but pellets went up? Why??
 
think bout this: could it be that most mills are shutting down because they lived high on the hog from all the profit they made when they had a monopoly on a certain market? now we have several southeastern mills that are up and running and are giving others a run for their money. COMPETITION is good . it keeps prices down and makes the greedy ones remember what its like to be where most of us live. MOST OF THE TIME a company goes under from poor management. ( just like we are right now as a country but thats another topic lol) if the owners/managers live above their means and spend squandrously then they will and do go belly up. any business marketing student and graduate will tell you that part of the factor you have to figure in a business is the possibility of competition. add that to an already ruined economy and a bankrupt government and you have closures.
 
BTU said:
preacherbiggin said:
think bout this: could it be that most mills are shutting down because they lived high on the hog from all the profit they made when they had a monopoly on a certain market? now we have several southeastern mills that are up and running and are giving others a run for their money. COMPETITION is good . it keeps prices down and makes the greedy ones remember what its like to be where most of us live. MOST OF THE TIME a company goes under from poor management. ( just like we are right now as a country but thats another topic lol) if the owners/managers live above their means and spend squandrously then they will and do go belly up. any business marketing student and graduate will tell you that part of the factor you have to figure in a business is the possibility of competition. add that to an already ruined economy and a bankrupt government and you have closures.

Actually just about 100% of the new southeast production is made for the export market and was never intended for domestic consumption to begin with. This isn't a valid argument. Europe and the far East consume far more than North America and when (not if) the utility companies here in the US and Canada start using pellets then a tremendous amount of the current domestic production will be scooped up for that...but that is still a couple of years off. I agree with you, competition is good, but at the end of the day, you still have to make a profit to stay in business and I can tell you for a fact that alot of mills aren't making a profit currently so you will see more and more stop producing if the prices keep coming down...There are alot of factors contributing to this....but the results are still the same...over supply currently for demand and that will cause closures.

IMO, Once the spring buy prices hit the market. You will see the demand go up some. Our deal breaker for pellets was around $250 a ton. The projected price this spring is much lower in my area. I will bet(but not very much) the sales start to pick up because of the price drop. If the oil spikes up you will see even more pellets sales.

I am very much going to stuff my supply as full as possible with the late season sale and spring buy prices! I have to keep my newly acquired oink oink status ya know!
 
When I bunker up this year it'll likely be equivalent to 5 or 6 (5 to 9 ton) skid order. I've gotten to the point I really enjoy being warm and I have the room.

If the pellets are too expensive I can always put a coal or wood burner in, perhaps a nice old soot belching straight box with some copper tubing wrapped around it and hooked up to my oil fired dragon. Got plenty of wood on the property I might leave the huge oak alone, that puppy probably has enough wood to do me for a season.

If oil is really cheap I could add another tank and fill it.

What ya say, BTU, should I buy the pellets or something else?
 
Mills and consumers have to share the blame for the tough times the mills now face.

Consumers have short memories and many have given up burning pellets because the don't see the immediate benefit with oil being more reasonable. Mills will close, oil will eventually rise again and the consumer will be upset that the supply is no longer there. Same thing has happened with residential solar even with unlimited tax credits.

Mills charged more in 2008 because with $5 heating oil, they KNEW they could.
They stayed high in fall 2009 becuase they THOUGHT they could.
They will reduce prices in 2010 or close becuase they HAVE TO.
 
BTU said:
SmokeyTheBear said:
When I bunker up this year it'll likely be equivalent to 5 or 6 (5 to 9 ton) skid order. I've gotten to the point I really enjoy being warm and I have the room.

If the pellets are too expensive I can always put a coal or wood burner in, perhaps a nice old soot belching straight box with some copper tubing wrapped around it and hooked up to my oil fired dragon. Got plenty of wood on the property I might leave the huge oak alone, that puppy probably has enough wood to do me for a season.

If oil is really cheap I could add another tank and fill it.

What ya say, BTU, should I buy the pellets or something else?


DUH......LOL

Hey, I might be the wrong guy to ask.. Splitting wood is way too much work at my age and way to messy. If this country is every going to rid ourselves of the thieves in the Middle East, we have to cut that cord and stop relying on their oil....so being as basis as I can be, my answer is .."Of course you should buy the pellets..!!"

If most people were honest about this ...sitting in your family room/den/TV room/bedroom/basement game room/where ever having the pellet stove warming your little butt, is just about the best thing ever. How many times have you looked at your stove in the dead of winter and just smiled knowing how much pleasure it gives you? Look at how many people come on this forum each week/month and gush over how much they like/love their stoves. You certainly don't get that same feeling about your furnace, or electric base boards now do you? Be honest... Of course you don't, which brings me back to my original statement......Should you buy the pellets??......DUH.......enjoy and stay warm....... ;-)

I agree, we all talk about lowering out dependence on foreign oil but how many have actually taken steps to do so? I have the pellet stove and I love it. My father in law has one of the outdoor wood burning furnaces and a basically unlimited supply of wood. He loves it and if I didn't live in town I would have one too! Our town, like many others, doesn't allow them in city limits due to emissions or some such nonsense. He has his rigged up to heat his house through the radiant heating system and it's great.

Still, I'll keep my pellet stove and not worry at all about oil!
 
mascoma said:
Mills and consumers have to share the blame for the tough times the mills now face.

Consumers have short memories and many have given up burning pellets because the don't see the immediate benefit with oil being more reasonable. Mills will close, oil will eventually rise again and the consumer will be upset that the supply is no longer there. Same thing has happened with residential solar even with unlimited tax credits.

Mills charged more in 2008 because with $5 heating oil, they KNEW they could.
They stayed high in fall 2009 becuase they THOUGHT they could.
They will reduce prices in 2010 or close becuase they HAVE TO.

Ypu, I'm counting on that. I'm watching prices very carefully and will pounce on the two brands that work the best for me...Oakies and Cubex. I know the Oakies will be down to around 235 / 240 a ton....The Cubex? Probably not but if they come down to a reasonable price I'll buy a ton or two.

Chan
 
BTU said:
CWR said:
mascoma said:
Mills and consumers have to share the blame for the tough times the mills now face.

Consumers have short memories and many have given up burning pellets because the don't see the immediate benefit with oil being more reasonable. Mills will close, oil will eventually rise again and the consumer will be upset that the supply is no longer there. Same thing has happened with residential solar even with unlimited tax credits.

Mills charged more in 2008 because with $5 heating oil, they KNEW they could.
They stayed high in fall 2009 becuase they THOUGHT they could.
They will reduce prices in 2010 or close becuase they HAVE TO.

Ypu, I'm counting on that. I'm watching prices very carefully and will pounce on the two brands that work the best for me...Oakies and Cubex. I know the Oakies will be down to around 235 / 240 a ton....The Cubex? Probably not but if they come down to a reasonable price I'll buy a ton or two.

Chan

Chan... we don't control what a retailer sells their stock for and I can't speak for Cubex, but if you see Okies selling for that price in the Hampton NH area...jump and jump fast...because that will be a VERY VERY good buy....... :smirk:

BTU, Agway is already at $249/ton for the Oakies and try as I might, I just can't get any reassurance from them that the price of Cubex will drop to $300/ton, still too high, but I can hope.. (If the Oakies don't drop, I'm planning on buying a few tons from them anyways :-)
 
SmokeyTheBear said:
Hoverfly said:
I agree the price of pellets must come down. The glut is also from pallet pigs who had horded several year worth and have not bought any this year. Supply and demand rules, however oil has doped around 70 bucks a barrel. Pellet producers may have a dry spell until demand picks up again.

If there was all that multi year hoarding going on please explain the 2008 pellets that are sitting at the Wal-Mart one and a half miles from me?

Thats kind of funny....the other day I needed pellets to make it through until I could get to my normal pellet pick up spot. I went to 2 Home Depots and Walmart and they were all out. I gave up and went to sleep with just the oil going. I don't think they're selling a crazy amount but they don't seem to be to focused on ensuring their in stock.
 
SmokeyTheBear said:
Hoverfly said:
I agree the price of pellets must come down. The glut is also from pallet pigs who had horded several year worth and have not bought any this year. Supply and demand rules, however oil has doped around 70 bucks a barrel. Pellet producers may have a dry spell until demand picks up again.

If there was all that multi year hoarding going on please explain the 2008 pellets that are sitting at the Wal-Mart one and a half miles from me?

Who said any thing about multi year hording? Two years ago pellets were much cheaper and while oil prices sky rocked people horded pellets causing a shortage. Right?
 
CWR said:
BTU said:
CWR said:
mascoma said:
Mills and consumers have to share the blame for the tough times the mills now face.

Consumers have short memories and many have given up burning pellets because the don't see the immediate benefit with oil being more reasonable. Mills will close, oil will eventually rise again and the consumer will be upset that the supply is no longer there. Same thing has happened with residential solar even with unlimited tax credits.

Mills charged more in 2008 because with $5 heating oil, they KNEW they could.
They stayed high in fall 2009 becuase they THOUGHT they could.
They will reduce prices in 2010 or close becuase they HAVE TO.

Ypu, I'm counting on that. I'm watching prices very carefully and will pounce on the two brands that work the best for me...Oakies and Cubex. I know the Oakies will be down to around 235 / 240 a ton....The Cubex? Probably not but if they come down to a reasonable price I'll buy a ton or two.

Chan

Chan... we don't control what a retailer sells their stock for and I can't speak for Cubex, but if you see Okies selling for that price in the Hampton NH area...jump and jump fast...because that will be a VERY VERY good buy....... :smirk:


BTU, Agway is already at $249/ton for the Oakies and try as I might, I just can't get any reassurance from them that the price of Cubex will drop to $300/ton, still too high, but I can hope.. (If the Oakies don't drop, I'm planning on buying a few tons from them anyways :-)

Chan
I have been reading this site for months and just wanted to see if you interpreted BTUs response the way I did.

It sounds to me that what the message is here is that the dealer is not selling them for much more than what he is paying for them. It would appear that all the hype about them on this forum I believe is giving them the green light to keep their prices up there since most people on this forum continue to boast about them. From all that I have been reading but could very well be wrong and apologize in advance if I am but the only time I have heard of a good deal on Oakies is when they had the ones that had issue and needed to be restacked and Squires appeared to have taken a good chunk of that deal. Distributors who are further away from Okies hub are going to have to pay more to get these items transported therefore raising their cost.
 
jtakeman said:
BTU said:
preacherbiggin said:
think bout this: could it be that most mills are shutting down because they lived high on the hog from all the profit they made when they had a monopoly on a certain market? now we have several southeastern mills that are up and running and are giving others a run for their money. COMPETITION is good . it keeps prices down and makes the greedy ones remember what its like to be where most of us live. MOST OF THE TIME a company goes under from poor management. ( just like we are right now as a country but thats another topic lol) if the owners/managers live above their means and spend squandrously then they will and do go belly up. any business marketing student and graduate will tell you that part of the factor you have to figure in a business is the possibility of competition. add that to an already ruined economy and a bankrupt government and you have closures.

Actually just about 100% of the new southeast production is made for the export market and was never intended for domestic consumption to begin with. This isn't a valid argument. Europe and the far East consume far more than North America and when (not if) the utility companies here in the US and Canada start using pellets then a tremendous amount of the current domestic production will be scooped up for that...but that is still a couple of years off. I agree with you, competition is good, but at the end of the day, you still have to make a profit to stay in business and I can tell you for a fact that alot of mills aren't making a profit currently so you will see more and more stop producing if the prices keep coming down...There are alot of factors contributing to this....but the results are still the same...over supply currently for demand and that will cause closures.

IMO, Once the spring buy prices hit the market. You will see the demand go up some. Our deal breaker for pellets was around $250 a ton. The projected price this spring is much lower in my area. I will bet(but not very much) the sales start to pick up because of the price drop. If the oil spikes up you will see even more pellets sales.

I am very much going to stuff my supply as full as possible with the late season sale and spring buy prices! I have to keep my newly acquired oink oink status ya know!

Jay I see you have aquired alot of knowledge of pellet performance by doing your testing but it also appears you understand the pellet industry as for what truely affects the pricing. The oil prices skyrocketing last year caused a shortage mostly because more people bought stoves and others bought more pellets than needed when word first came out of a potential shortage then the lack of raw material from a sluggish economy only made the situation worse because manufacturers did not have what they needed to keep up with the unanticipated demand for pellets forcing the manufatures to scurry to locate the material needed to put the pellet industry back on track. I would suspect that since there was such a large demand for this material they may also have had to pay top dollar for that product not counting the cost of having that product transported at high diesel costs. I would suspect that since the demand has come down maufactueres are probably still sitting on this product that they paid a pretty penny for. So I wonder if that is why even though the oil prices are better that possibly some manufacturers are trying to get rid of the product produced at a much higher cost. I know a couple small companies who tried to get into pellet sales in the last year or so that all of this has forced them to close up shop.
 
Hi Cookie, welcome to the forum! I agree with you. BTU has said exactly the same thing before. In Cubex's case, there are transportation costs as well. Still, if there is a glut on the product, the manufacturers and dealers have two choices. Sit on the product and hope for a spike in demand, or drop the price until the product moves. In my local Agways case, they don't seem to be over stocked. (I could be wrong, they have a few buildings that can hold a lot of product out of sight) My gut feeling is that they set their prices when the place their orders and don't budge until the next order. That's what I'm hoping for...a lower price on the next order. However, as you said, Oakies have been hyped up (and rightly so). If sales are good, there's no reason to drop the prices. I can only hope!

Chan
 
Hoverfly said:
SmokeyTheBear said:
Hoverfly said:
I agree the price of pellets must come down. The glut is also from pallet pigs who had horded several year worth and have not bought any this year. Supply and demand rules, however oil has doped around 70 bucks a barrel. Pellet producers may have a dry spell until demand picks up again.

If there was all that multi year hoarding going on please explain the 2008 pellets that are sitting at the Wal-Mart one and a half miles from me?

Who said any thing about multi year hording? Two years ago pellets were much cheaper and while oil prices sky rocked people horded pellets causing a shortage. Right?

"The glut is also from pallet pigs who had horded several year worth and have not bought any this year."

I do believe you did, even getting the name of the so called horders wrong I might add ;-) .

Having paid my dues, hey Eric did you get your cut yet, I must defend my fine brother and sister pellet pigs.
 
I am looking at the big picture from 50,000 feet and see big time deflation in the US, demand drop, businesses continuing to dump their inventories. Cheaper prices BUT.... that will only last until the current supply dries up.
More mills will go out of business shortly due to large current inventories and consumers not having the money to gain entry into the pellet stove game. After all, this is really a Depression, and the public has yet to grasp the severity of our plight due to all of the Government's smoke and mirrors (bogus economic data) ... the economy will continue to painfully contract for years to come. No jobs. Period. It will take years (perhaps a decade) to grow new ones and the lack of liquidity (credit) will strangle that growth.

So short term, cheer and get the supply out there as cheap as you can because that will not last. I see big time inflation coming on the heals of the economic failures/defaults in Greece, Portugal, Ireland and Spain (in the next 12-18 mos.) and quickly, these pellets will never be as cheap as they will be over the next year. The European failures will impact oversea pellet sales and there won't be enough of a market in the US to take up that slack. More pellet production capacity will fold and the market will be very tight as manufacturers will try to make only what can be consumed. As the economy collapses, so will this business. I just don't see anymore incentives (tax breaks) for this industry as Uncle Sam wants to take, take, take and is hungrily broke.
I neither see the expansion of the industry or its demise. It will shrivel up with everything else.

I will be buying 2-3 years worth of pellets with the current cheap dollars as I see fewer pellets being made in the near future. True be told, if I had the storage, I would take 20 tons, five plus years worth. My take. Good luck to all.
 
Dam....that outlook is depressing.

I have caught "pellet comfort fever." I could heat with gas and probably cheaper, but much less comfortable than using pellets. If I had the space, I'd take a trailer of okies today....hmmm, I wonder if the inlaws have extra space..lol
 
Status
Not open for further replies.