Wood Pellet Supply
As the world struggles back to its feet the implications of COVID on world supply chains have been dramatic. Wood pellets are one of the areas that have been quite severely affected, and we urge our customers to consider the potential implications on their fuel supply now – while the risk of disruption is minimal.
Wood pellets are typically produced from the waste wood fibre from the timber milling industry. During the production of planks, up to 30% of a tree can be turned into sawdust, and it is from these materials that pellets are made. A strong supply of pellets is dependent on a strong supply of raw material, sawdust, which is dependent on strong demand for planks. The demand for planks is a function of how much construction is occurring. Thanks to COVID, construction across Europe has come to a grinding halt. In a best-case scenario, where construction resumes apace on the 1st of June across the whole of Europe, we will end up with a 3 month gap where minimal production of pellets is possible due to a shortage of raw materials.
The largest market for premium pellets in the world is Italy. For comparisons sakes, they consume approximately 3.5 million tonnes of wood pellets in bags, compared to approximately 100,000 tonnes of bagged pellet in the UK. Most Italians buy their wood pellets in supermarkets by the bag. As a result, a sophisticated and complex supply chain has developed that sees the Italian pellet merchants purchase pellets strongly throughout the summer months so as to be able to offer pellets for sale in winter where the monthly demand far outstrips the monthly production.
At the end of May, we are two months into the Italian summer buying season, and the market intelligence we’ve seen indicates that only in the last week has the Italian market started to purchase pellets, and at a lower rate than normal.
We therefore expect an almost perfect storm of excess demand at a time when supply will be constrained more than normal. We don’t have a crystal ball, but we are expecting the following:
• “Winter” pricing to appear as early as August or September across the market.
• Prices in November – February have the potential to be unusually high.
• Smaller suppliers unable to access pellet supply regardless of price.
The good news is that right now, the UK market is benefiting from the glut of stock available on the market, and we are seeing pellets available as cheaply as they have been for some years. Not all customers will have the storage, or the cash, to purchase ahead of the winter, but where possible we strongly recommend customers purchase part of their winter stocks early. Its remains our intention to always be the most competitively priced pellet on the market.
Fortunately White Horse Energy had a comprehensive Brexit plan to ensure supply throughout the winter, which we’ve now adapted it for COVID! But please be mindful that our competitors may be less prepared, and we may face unprecedented demand as a result.