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Wood fiber costs fell for US pellet manufacturers but increased for Canadian producers in Q2/2019

Wood fiber costs for US pellet manufacturers fell in the 2Q/19, while Canadian pellet producers experienced higher costs due to reduced supply of sawmill residues, reports the North American Wood Fiber Review (NAWFR).

A truck unloading sawmill residuals at a wood pellet mill in the US South.

A truck unloading sawmill residuals at a wood pellet mill in the US South.

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 United States (US) in H1/2019, according to North American Wood Fiber Review (NAWFR).

In late 2018, higher demand and a tighter supply of low-cost sawmill residues pushed wood fiber costs higher for pellet producers in both Canada and the US. Wood Resources International’s (WRI) feedstock price indices increased during the fall of 2018 and in early 2019 to reach their highest levels in two years, according to NAWFR.

The price increase in the US was mainly due to the wet logging conditions in the southern states that began in late 2018 and intensified in Q1/2019, which negatively affected harvesting operations and increased costs for roundwood.

A shift in feedstock source

In the Q2/2019, the Pellet Feedstock Price Index for the US (PFPI-US) fell 2.3 percent quarter-on-quarter (q-o-q), mainly due to slightly higher usage of residual chips instead of costlier logs.

Over the past five years, pellet producers in the US South have shifted their wood fiber mixes away from costlier logs and towards lower-cost woodchips and sawdust. This has led to a considerable reduction in the total wood fiber costs for the expanding industry.

The Pellet Feedstock Price Index for Canada (PFPI-Can) 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 (BC), where most of the Canadian pellet facilities are located.

The Pellet Feedstock Price Indices for the United States (US) and Canada (chart courtesy NAWFR).

The Pellet Feedstock Price Indices for the United States (US) and Canada (chart courtesy NAWFR).

Due to the temporary curtailments and permanent closures of sawmills in BC, 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 BC sector to handle the increase in fiber costs for now. However, the report notes that 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.

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