Fiber costs fall for US pellet producers, rise for Canadian

By Wood Resources International LLC | October 01, 2019

Wood fiber costs for U.S. pellet manufacturers fell in the  Q2 2019, while Canadian pellet producers experienced higher costs due to reduced supply of sawmill residues, reports the North American Wood Fiber Review.

Many pellet manufacturers in North America have had to increase the usage of logs for
their feedstock in 2019 because of reduced availability of lower-cost sawmill residues. This
has resulted in higher total wood fiber costs and increases in the pellet feedstock price
indices for both Canada and the US in the first half of 2019, according to NAWFR.

In late 2018, higher demand and tighter supply of low-cost sawmill residues
pushed wood fiber costs higher for pellet producers in both Canada and the US. WRI’s
feedstock price indices increased during the fall of 2018 and in early 2019 to reach their
highest levels in two years, according to the North American Wood Fiber Review. The price increase in the U.S. was mainly due to the wet logging conditions in the southern states that began in late 2018 and intensified in the Q1 2019, which negatively affected harvesting operations and increased costs for roundwood. In the Q2, the Pellet Feedstock Price Index for the U.S.  fell 2.3 percent quarter-over-quarter (QOQ), mainly due to slightly higher usage of residual chips instead of costlier logs.

Over the past five years, pellet producers in the U.S. South have shifted their wood fiber
mixes away from costlier logs and towards lower-cost wood chips and sawdust. This has
led to a considerable reduction in the total wood fiber costs for the expanding industry
sector (see chart).

The Pellet Feedstock Price Index for Canada increased by almost 12 percent Q-O-Q in Q2 2019. The substantial fiber price increases in Canada reflected the continuing change in fiber availability in British Columbia, where most of the Canadian pellet facilities are located. Due to the temporary and permanent closures of sawmills in British Columbia, supplies of sawdust and shavings have diminished. Although the increased volume of fiber from both forest biomass grinding and chipping is making up the difference, this material is significantly costlier than sawmill residuals.
The current higher price for exported pellets is allowing the British Columbia sector to
handle the increase in fiber costs for now. However, it is likely that over the remainder of
the year, fiber availability will become a concern, with the prospect of a higher PFPI-Can
index in the coming winter season.