A Banner Year

If a sector’s health is determined by the opportunities in front of it, it would be hard to argue that the residential wood pellet industry has ever been healthier.
By Tim Portz | January 22, 2020

In January 2016, the U.S. Energy Information Administration launched the Monthly Densified Biomass Fuel Report, finally providing industry participants and observers with regular, reliable information about monthly production, inventory levels and production specifications. While lagging the calendar by roughly 90 days, the data accumulated so far indicates 2019 was the most successful year for producers of residential wood pellets since reporting began.

The data confirms what many in the industry suspected would happen when the calendar flipped a year ago: Carryover inventories in most regions were nearly nonexistent, and forecast demand was high. The bottleneck that most producers were concerned about early in the year was the availability of feedstock, as the hardwood sector continues to reel from an ongoing trade war with China that has all but halted shipments of hardwood lumber to every producer’s largest foreign buyer. While the data points to the highest levels of production since the report began, conversations with producers reveal that production and sales could have been even higher, had more feedstock been available. The past year saw throughput at wood pellet production facilities nearing capacity and remaining there for most of 2019. In the East, production averaged just below 100,000 tons per month through September, with the July to September inventory buildup throttling  to 110,000 tons per month. To place these recent numbers in context, consider that monthly production in the East averaged just 85,000 tons in 2018 and 65,000 in 2017. Production in the West is also at an all-time high, but the numbers aren’t as eye-popping as those in the East. Average monthly production in 2019 (through September) in the West was 36,717, compared to 33,000 in 2018 and 33,750 in 2017. These production increases beget increased sales and cash flow. A 15,000-ton-per-month increase in the East translates to more than $2.5 million in new revenue each month when considering the average reported per-ton price of $175. These increased revenues are a welcomed sight on producer balance sheets.

Amidst all these record production levels and increased plant revenues are some reasons for concern, none more glaring than the historically low inventory levels throughout most of the pellet-producing regions. The industry began 2019 with uncomfortably low inventory levels, and when the reporting catches up, it will likely find 2020 in a very similar place. The East began the year with just 22,000 tons of inventory and struggled to stockpile anything until buying died off in April. September saw producers in the region with just 77,000 tons of inventory on the ground. Compare that to 100,000 tons last year and 290,000 tons in 2017. While the optimal inventory level number is debatable, the fact is producers and buyers alike aren’t comfortable with current inventory, but building them right now remains a challenge. Returning inventory levels to more comfortable levels will be a high priority for producers in 2020, but that effort will have to wait until the 2019-’20 heating season ends.

At the beginning of the year, I had a conversation with a producer-member who shared with me that, given a choice between too much demand and too little, he would rather manage the challenges of too much demand. That’s where the pellet industry finds itself as 2019 draws to a close. Producers are shipping product as fast they can make it, and retailers are casting their nets far and wide to keep their customers stocked with pellets. Somewhere within this year of historic production and sales and low inventories is the story of pellet demand generated by the meteoric rise in interest in wood pellet barbeque grills. The real number of appliances sold each year remains difficult to determine, but the consensus is that the industry is selling more than 1 million wood pellet barbeque grills and smokers a year, and for now, there doesn’t seem to be any sign of a slowdown. This demand puts further pressure on available fiber, press time and inventories, and this, too, will get producer and retailer attention in 2020.

If a sector’s health is determined by the opportunities in front of it, it would be hard to argue that the residential wood pellet industry has ever been healthier.

Author: Tim Portz
Executive Director, Pellet Fuels Institute