Canadian Biomass Magazine

Pellet expansion increases biomass costs

December 11, 2009
By Wood Resources International


Pellet expansion increases biomass costs

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

Dec. 11, 2009, Seattle, WA – There has been a rapid expansion in wood pellet capacity
in North America over the past five years, from just over one million tons in
2004 to over six million tons in 2009, according to a recent report from the U.S.
Department of Agriculture Forest Service (USDA-FS). British Columbia was the
first region to take advantage of inexpensive sawmill residues and to produce
wood pellets for the fast growing European market.

Capacity in the western province of Canada has not grown much in the past few years, so
in 2009, it is likely that the U.S. South will take over as the leading
pellet-producing region in North America, according to the North American
Wood Fiber Review
. Much of the investment in pellet capacity in the U.S.
South has been driven by the export market in Europe. In contrast, the second
largest producing region in North America, the western United States, has so
far only sold pellets into the domestic market.

In 2004, the pellet industry was practically non-existent in the U.S. South. This
sector has now grown and will reach a capacity of almost two million tons in
2009. However, the actual operating rates have been surprisingly low in both
the United States and Canada. In 2008, U.S. production was about 66% of capacity,
and Canadian production was about 81% of capacity, estimates the USDA-FS. Major
reasons for the low rates include start-up problems for new plants, financial
difficulties for some companies, and a lack of affordable wood fibre.

With increased demand for wood fibre, pellet manufacturers have increasingly had to accept
higher-cost wood fibre than the commonly used sawdust from local sawmills. More
pellet companies are now using wood chips that traditionally have been used by
the pulp industry. Partly as a result of the expansion of the biomass sector,
wood chip prices, sawdust prices, and woody biomass prices have increased in
the United States this fall.


In the U.S. Northwest, sawdust prices have gone up substantially over the past
five years. In 2004, average sawdust prices were US$28/odmt (oven-dried tonne),
as reported by the North American Wood Fiber Review. These prices reached
a peak of US$74/odmt in late 2008 and have since fallen, averaging US$64/odmt
in the third quarter of 2009. The price increases that have occurred in western
United States are likely to be seen in other regions experiencing rapid
expansion of the pellet industry.

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