Wood Pellet Pricing on Upward Course

The wood pellet industry in North America has grown six-fold since 2004, with the dramatic expansion resulting in higher costs for sawdust and wood chips in some geographic regions.

According to the North American Wood Fiber Review, regions with the greatest growth in demand include the western United States and Canada. North American Wood Fiber Review is an annual 24-page publication produced by Wood Resources International LLC, Seattle.

Matching the demand, there has been a rapid expansion in wood pellet capacity in North America, from just over 1 million tons in 2004 to more than 6 million tons in 2009, according to a recent report from the USDA (United States Department of Agriculture) Forest Service.

British Columbia is cited by North American Wood Fiber Review as “the first region to take advantage of inexpensive sawmill residues and to produce wood pellets for the fast growing European market.”

Capacity in that western province of Canada has remained steady during the past several years, allowing producers in the United States South to take over as the leading pellet-producing region in North America, according to the publication.

“Much of the investment in pellet capacity in the U.S. South has been driven by the export market in Europe,” says the publication in a news release. “On the other hand, the second largest producing region in North America, the western U.S., has so far only sold pellets into the domestic market.”

In 2004, the pellet industry was practically non-existent in the South, but the sector has now reached a capacity of almost 2 million tons, according to North American Wood Fiber Review.

Although pellet volumes have grown, operating rates in 2008 were at about 66 percent of capacity in the United States and 81 percent of capacity in Canada, according to USDA Forest Service estimates.

With generation of sawdust from local sawmills down because of the depressed homebuilding sector, more pellet companies are now using wood chips that traditionally have been used by the pulp and paper industry. As well, the expansion of the biomass energy sector caused wood chip prices, sawdust prices and woody biomass prices to move upward in the fall of 2009.

In the U.S. Northwest, average sawdust prices in 2004 were $28 per oven-dry metric ton (odmt), as reported by the North American Wood Fiber Review. These prices reached a peak of $74 per odmt in late 2008 and have retained strength, averaging $64 per odmt in the third quarter of 2009.

Pulp wood and wood chip market updates, including information on the likelihood of price increases occurring in other regions, are included in the most recent edition of the North American Wood Fiber Review.

More information on Wood Resources International LLC and its products and services can be found at www.woodprices.com.