Pellet expansion increases biomass costs

Wood Resources International
December 11, 2009
Written by Wood Resources International
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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