Against the grain: The latest on wood commodities

Against the grain: The latest on wood commodities

Excess supply and shifting demands have recyclers seeking new markets for their wood products.

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June 20, 2019

Of all the commodities recovered by recyclers, wood is one that has withstood the tests of time. It helped define and shape our civilization, as humans tens of thousands of years ago used it for fuel, building materials, furniture, paper, tools and more. Still just as pertinent in society today, wood is one of the few commodities unaffected by China’s strict National Sword policy, as its end products move reliably within U.S. borders.

And yet it faces its own set of unique challenges on the domestic front. While pricing in key wood scrap markets, like biomass fuel and mulch, is at healthy levels, an excess supply of input and evolving markets have left recyclers seeking new homes for their scrap.

“Diversification is a key ingredient in our business on how we handle materials once they are sorted in our recycling facilities,” says Paul Kuhar, the vice president of Dallas-based Champion Waste and Recycling Services, a waste and recycling company that produces mulch from its wood waste.

A glut of wood

Most products made from recycled wood—from mulch and biomass fuel to particleboard and animal bedding—require relatively clean, unpainted wood recovered from post-industrial and construction and demolition (C&D) sources.

As in all waste streams, wood waste can come with some contamination, like stray pieces of metal. “Just ensuring that supply is clean is a continual challenge,” says Bill Keegan, the president of the Shakopee, Minnesota-based Dem-Con, which produces multiple wood products from its scrap.

However, most recyclers around the country have had no trouble coming up with clean wood scrap input to feed their end market demands.   

“Due to the construction boom in Texas, there has been an increase in wood waste being produced by both construction and commercial locations,” Kuhar says. “Although there are no regulatory issues in obtaining more wood waste to sort in our recycling plants, the economic factor does play a role in how we strategically plan to grow our business, as volume and customer needs change.”

Local regulations have had a hand in adding to the wood pile. In California, for example, Senate Bill 1383 was signed into law in 2016 to establish methane emissions reduction targets in the state. A large portion of that bill requires diverting organics from the landfill, which includes anything from food to wood.

“With Senate Bill 1383 on the horizon, you will see an extra 2 million tons of lumber hit the streets of California by 2022,” says Michael Gross, the director of sustainability for Zanker Recycling, based in San Jose, California. “There’s a lot more wood being generated than can find homes.”

While the abundance has made supply simpler to get a hold of, that ease hasn’t necessarily translated to marketing the recycled products. In some areas, the over-supply has saturated the markets, making it increasingly more difficult to stand apart from the competition.

In Ohio, for example, lands are continuously being cleared for natural gas pipeline construction, resulting in an excess amount of wood that many have taken advantage of to begin producing mulch, says John Kurtz, the owner of the Independence, Ohio-based landscaping supplies and waste management company Kurtz Bros.

For Kurtz, the variety of mulch colors and sizes he offers, among a variety of other products made from recycled commodities, gives him an edge, but the oversupply has him eyeing new markets.

“A number of years ago we had to buy a lot of wood for our mulch. Now we don’t have to because there’s such a glut of wood,” Kurtz says. “Mulches have become too much of commodity. We’re looking for ways to differentiate ourselves.”

Mulch mayhem

Because of its weight, wood products often find homes within a 50-mile radius of where they were manufactured, according to the U.S. Department of Energy, so it’s vital recyclers analyze their local markets when looking for ways to differentiate themselves.

For the recyclers looking to diversify their wood offerings, mulch isn’t a bad place to start. Despite the vast number of players in the area, it’s a wood product with a stable demand, allowing it to retain its margin of profit, albeit small, over time.

The months ahead are especially happy times for mulch producers, many of whom have been working all winter to build up their supply. As the entire U.S. gets relief from cooler temps while summer rolls in, landscapers are busy at work buying up mulch to prep properties for the growing season.

Producing mulch requires balance and strategy, as demand is seasonal in most regions, though it’s predictable once the formula is realized. Many recyclers supplement the off-season with other products, grinding up wood through the winter to hit the ground running come spring.

“During the non-selling season—pretty much everything from November through most of March—we continue to grind the wood as it comes in and then size it with the screening machines we have. Then, when the weather man permits, we start the coloring,” Kurtz says.

Biomass roadblocks

Venturing into biofuel, however, is a riskier endeavor.

Wood prepared for biofuel, which can be used to produce renewable electricity along with other types of energy, is a much more finnicky material than mulch to store. Although demand isn’t subject to seasonality, wood biomass for fuel has a finer particle size prone to dust and more rigorous moisture requirements, leaving recyclers with substantial upfront costs to create the proper production environment.

Keegan says that since Dem-Con began producing biomass, he’s had to invest in dust control equipment, processing machines and an entirely separate facility to control moisture levels. 

The selling point for biofuel is healthy, as the average price of California wood biomass in the second quarter of this year was $44 per bulk dry ton, according to the North American Wood Fiber Review, down just $1 from an all-time high in the fourth quarter of 2018. Those high price points, however, may just be a detriment to this energy source.  

Once thought to be an up-and-coming source of energy for the country, biomass has fallen short of its expectations. From 2000 to 2017, the amount of urban woody wastes consumed by biomass decreased by 1 million tons in California alone, according to CalRecycle.

The decrease has been due to a number of factors, not least of which includes its high price point compared with other types of renewable energy, like solar and wind power.

Biofuel also falls flat when compared with alternatives in terms of cleanliness, as it releases carbon dioxide when burned.

Biofuel’s cleaner and cheaper competitors have resulted in a slew of recent biomass facility closures across the country, aptly dubbed “Woodageddon” by Gross, who says the product accounts for nearly 70 percent of Zanker’s wood production.

With the onslaught of facility closures, Gross says Zanker has been looking at a multitude of ways to adjust operations, including everything from more stringent quality control to different markets.

“We have options for our biomass, but as these plants shut down, we’re going to have less and less options,” Gross says. “We’re looking at all different aspects of this, including the technology to be able to maybe transform these materials into something different.”

Another solution Gross will almost certainly implement is increased rates—a relatively quick solution familiar to most longtime recyclers who have lived through the ebbs and flows of market conditions.

“The single most important factor to recycling any type of material, including wood, is to ensure the cost of sorting and processing those materials are covered in your tipping fee,” Kuhar says. “Due to the market conditions always changing, the cost of any single material, including wood, could be less valuable, making it challenging to market that material.”

Branching out

With uncertainty over the future of biofuel, a major channel for wood scrap, many recyclers are setting their sights on up-and-coming products with hopes of diversifying their offerings.

“Markets can open and close almost daily it seems sometimes, so in order to prepare for that, Champion became more vertically integrated with our wood sorting and processing,” Kuhar says. “This strategic move has allowed us to utilize the most current technology available to the industry to create higher end materials that have stronger markets.”

One such market is biochar, burnt wood used as a soil amendment to boost nutrients and absorb more water. “I think it’s something that’s going to grow going forward,” says Kurtz, who is currently looking into the market as he expands from Ohio into surrounding states.

Other more minor markets recyclers are eyeing are animal bedding and erosion control, though those, like biofuel, have more stringent guidelines.

Overall, recyclers are cautiously optimistic over wood prospects, remaining hopeful about growing markets but conscious of ever-changing business conditions.

“Like any business, you must manage the business appropriately to realize that profit. If too much supply is available, end market prices will reach a point that even at high volumes of recovered wood, the margin will not be there,” Keegan says. “As with any recycling operation, the margins are tight and you must run an efficient and safe operation.  There is a fine line between running a profitable recycling operation and losing money on recycling … I think there are some innovations coming out that hopefully will use up some of that excess supply.”