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​Wood Pellet Shortage?

Wood Pellet Shortage?

 

Why

If you’re shopping for wood pellets right now you’ve probably noticed that the majority of retailers either don’t have stock, or have dramatically increased their prices. Fundamentally, what we’re looking at is a European wide shortage of wood fibre (the raw materials pellets are made from) that has severely restricted supply and massively increased the cost of pellets at point of manufacture. For the short term we expect availability to remain patchy throughout December with supply normalising to some extent in January, but for prices to remain where they are (or in some cases increase further) until at least April.
 

The Situation in Europe
For the last few years the European pellet market has been in a position of oversupply. An abundance of the wood fibre used to manufacture pellets combined with a number of mild winters contributed to create a buyers’ market where pellets were readily available and prices were at historic lows.
This winter, a number of biomass fuelled power stations in Europe have come on line. These have created significant demand for the same raw material. Additionally, much of Europe has had an unseasonably warm and wet Autumn – this has led to timber operations in many European forests being halted. They rely on frozen ground providing access to their heavy machinery into the forests – when the ground is wet and unfrozen, they either can’t gain access because their kit gets stuck, or their operations are significantly hampered.
So, we’ve got significantly higher demand (from both the traditional wood pellet market and biomass power industry), and significantly lower supply of raw material. In some cases, we’ve seen raw material costs increase by as much as 90%, in others the raw material just isn’t available, regardless of what one is willing to pay.
Due to this materials shortage, the majority of pellet producers are running at reduced capacities. Quite a lot have simply ceased production until the raw materials are available again.
Finished pellet prices are now around 30% - 20% higher now than they were last year.
 
The Impact in the UK
The UK is currently a net importer of wood pellets (i.e. we import more than we export.) Hence any prices changes in Europe are quickly reflected in the local market - UK producers who have been forced to sell at a loss in recent years to compete with imports are suddenly able to charge a ‘sensible’ price to their retailers.
Last week these supply side pressures were further exacerbated by strong winds on the East coast of England which meant that a number of container ships with significant stock on them were unable to dock until nearly a week after they were due.
White Horse Energy prides ourselves on holding sufficient buffer stock to deal with these eventualities. Unfortunately, it seems a number of our competitors don’t – hence when customers weren’t able to buy pellets from their normal retailer, they bought from us instead. Great news for us, but unfortunately our stock holdings weren’t able to deal with volumes in excess of double our projections, combined with a delay in inbound stock.
We are still seeing much stronger sales of pellets than anticipated for the time of year. As a result, all of our pellets are currently being sold with a future dispatch date (See the wood pellet page for up to date details). These are updated constantly and are visible on the website by product. We will never sell a pallet of pellets that we don’t have, so while there may be a delay in dispatch compared to our normal service, you can be confident that if we have sold you pellets, these will be with you in line with the delivery date estimate on your invoice – typically sooner.


The Impact for White Horse Energy Customers

We expect UK supply of pellets to be somewhat patchy throughout the remainder of December (and hence place some pressure on our availability). However, we are confident that come January things will have settled somewhat. We are open and will be taking and dispatching orders throughout the Christmas break.
 
In terms of pricing we anticipate prices staying the same, or if they do increase, increasing only marginally from current levels from now until the end of March.
 
Retail prices are currently up 10-15% on a year ago. Given that wholesale prices have increased 20-30% and raw material prices have increased by up to 90% I think the market as a whole has done a very good job at finding additional efficiencies and absorbing costs in order to limit the price increase being passed on to consumers.

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Posted: 11/12/2017 10:18:18 by Stuart Fitzgerald | with 0 comments