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Shortage risk looms as unseasonably cold weather spurs Swedish pellet demand

Swedish wood pellet consumers may face temporary supply shortages if the unseasonably cold weather becomes protracted, the Swedish Pellets Association (PelletsFörbundet) has cautioned. "Generally speaking, pellet production capacity normally "catches up" with pellet demand in mid-March, but this year it will certainly take another few weeks," says Bengt-Erik Löfgren, Coordinator for the Swedish Pellets Association.

“Generally speaking, pellet production capacity normally “catches up” with pellet demand in mid-March, but this year it will certainly take another few weeks,” says Bengt-Erik Löfgren, Coordinator of the Swedish Pellets Association, here seen addressing delegates at the Nordic Pellets 2018 conference in Helsingborg, Sweden.

According to the Swedish Pellets Association (Pelletsförbundet), uncontracted wood pellet supplies are currently tight throughout Europe. And the unseasonably cold weather of recent weeks in Sweden and the rest of Europe has compounded the situation by creating a higher seasonal demand than many had anticipated.

However, Bengt-Erik Löfgren, Coordinator for the Swedish Pellets Association, emphasises that the current Swedish pellet market situation in this year’s heating season is quite unprecedented in catching both consumers and producers off guard.

Basically, we have had several warm heating seasons with below average pellet consumption in Sweden, which has meant that both consumers and producers had little in the way of inventory going into this year’s season, said Löfgren.

At the same time, the industrial market for pellets in Sweden had grown larger than the association had originally forecasted – largely attributed to the increased carbon tax rate for industries outside the Emissions Trading System (ETS) and the success of the Swedish Environmental Protection Agency’s (Naturvårdsverket) “climate-step” (Klimatklivet) investment programme.

Wet, wet, wet then cold

In addition, the mild autumn and early winter weather with high rainfall put a significant damper on forest harvesting and haulage operations, especially in the Baltic countries and southern Sweden, with some companies unable to move any logs from the forest until it became cold in mid-January. But by then quite a number sawmills had been left idle or with curtailed production for several weeks on account of log shortages, as were pellet mills that depend on logs and sawmill residuals.

As most of the pellet production in the Baltic countries is exported and manufacturing there is down, it has consequences for supply across Europe. Especially a cold late winter like this winter. But we in southern Sweden have also had difficulty in getting logs to our sawmills, with the consequence that we have also produced slightly less pellets than usual. As inventories drain both in Sweden and abroad, there is essentially no margin left to balance with, explained Löfgren.

On the upside, says Löfgren, is that the sawmill industry is going flat out again, now that sawlogs are coming in, providing the raw material for pellets production.

Generally speaking, pellet production capacity normally “catches up” with pellet demand in mid-March, but this year it will certainly take another few weeks. Nevertheless, most of our member companies still remain confident that they will be able to manage their contracted deliveries, provided that the cold weather we are currently having does not go on for too long. But the situation right now is that companies have difficulty in taking on any new customers during this season, said Löfgren.

Exceptional and temporary

However, Löfgren stresses that the association sees the current market situation as “temporary and exceptional” highlighting that on a global basis, pellet production is increasing year-on-year to around 30 million tonnes 2017, of which about 1.6 million tonnes were produced in Sweden.

That extremely cold winters can cause problems is nothing new but normally this has meant that we are forced to increase the import volume of pellets. The current situation with a tight supply in Europe, is therefore a completely new and unfortunate situation for the industry, said Löfgren

He also revealed that the industry is looking into how to avoid ending up in the same situation in the future.

Amongst other things, we are discussing how we could continuously report our estimated surplus as a common “buffer inventory” where each producer reports monthly on their buffer status. This way we could get early indications on how the market is developing. When an acute supply situation emerges, we can try as a collective to alleviate the problem, said Bengt-Erik Löfgren.

As a pellet consumer, buying early and carrying more inventory over the critical cold period is reasonable advice.

As a final piece of advice to pellet consumers, Löfgren recommends supply contracts and carrying higher inventory over critical periods.

The advice we can provide from the Swedish Pellets Association is that you as a customer sign an supply agreement and order pellets well in advance of the season. It’s also good if you also try to carry stock that lasts a bit longer for greater security, ended Bengt-Erik Löfgren adding that customers with a supply contract always have first priority in situation like this.

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