From the Director's Desk:
Buckle Up, Reading the EIA Tea Leaves, PFI Board to Gather in Miami in October
Buckle Up
I try to avoid hyperbole. I do. Lately, however, I’ve found myself saying things that certainly sound a lot like it. For instance, over the course of the last six weeks, I’ve said repeatedly in conversations with our members that the heating season of 2022-23 is shaping up to be the most interesting of my 12-13 years of observing and writing about the wood pellet industry. As the calendar flips to September and early autumn, I’m even more convinced of that fact now than I was six weeks ago.
Don’t take it from me. Instead, read the collection of stories I’ve aggregated in the Industry News section of this issue of the Pellet Wire. They all (save one) tell the same story. Heating fuel inventories are tight, both locally and abroad. The supply hole created by sanctions against Russian fuel of all types (including wood pellets) is disrupting pricing and availability in Europe already and phones are ringing stateside from buyers looking for pellet volumes from basically everyone that owns a mill.
I did find one more tempered news story that quotes Charlie Summers with the Maine Energy Marketers' Association. In the story, Charlie asserts that Mainers needn’t worry about oil retailers running out of heating oil inventory but he does recommend planning ahead. The remainder of the stories linked in this issue of the Pellet Wire is all more dour, and more urgent.
Last week the PFI issued a press release urging wood pellet consumers to plan ahead and lock in some inventory now, if for no other reason than to lock some of the winter’s tonnage at today’s prices. Inflationary prices on heating fuels of all types seem all but guaranteed at this point. I’m confident wood pellets will deliver significant discounts per BTU to our fossil fuel competitors, but wood pellets will not be immune to inflationary pressures this season and the EIA data from May already supports that assertion. Urging consumers to act now gives our industry some runway in answering the demand call we all expect is coming later in the season.
Reading the EIA Tea Leaves
During our annual conversation with Connor Murphy at the EIA (via Zoom) at this year’s PFI Annual Conference, I wondered aloud during our conversation if the impact of foreign demand for U.S. produced heating pellets would show up in the Monthly Densified Biomass Report and how it might show up. The report, after all, has been organized to report on two distinct and separate markets operating, largely, independently of one another. The report aggregates some data (operating facilities, residues, feedstocks) into one number, while other data (production, inventory, sales) are reported by market. What isn’t clear is where heating pellet export numbers, when they occur, will show up. Connor, if you are reading this expect a call from me about guidance to producers regarding the reporting of sales of wood heating pellets in an export capacity.
Let’s dig into the May data and see what we might glean from it. Total U.S. production (premium) was strong (142,681 tons) but not a May record (164,964 in 2019). Through May U.S. production comes in at 662,888 tons, the lowest January-May output since 2018. In that way, the impact of foreign demand on production decisions isn’t supported by the data. Producers may have been hearing about a European shortfall and phones may have been ringing but the conversations producers were having weren’t motivating them to give their plants more throttle input (that metaphor is for you John Utter). Producers hew far more tightly to actual orders than potential orders when making production decisions and sales numbers over that same period tell the story. Marketplace uptake for heating pellets from January – May was dismal this year (504,667 tons). For comparison U.S. total sales volume January – May since 2018:
2021 – 617,567 tons
2020 - 758,121 tons
2019 – 752,601 tons
2018 – 708,803 tons
Before closing the book entirely on the May data in the Monthly Densified Biomass Report and what evidence it may have regarding overseas demand I’ll draw attention to two items. First, the U.S. wholesale average is now $205.29. In May of 2021, the U.S. wholesale average for heating pellets was $181.63. Some context here is prudent. Yes, the price increase is a 13% step forward in a year, but it isn’t that much of a departure from the increase from May of 2020 to May of 2021 ($165.31 to $181.63 or 9.8%). This will be a number to watch as the season unfolds and I wouldn’t even hazard a guess at where it might end up come February or March. Next, I’m seeing an inventory depletion in the East in May that seems out of place. The region saw inventories deplete by 12,000 tons in May, which is atypical. Looking as far back as 2016 never before has the May inventory position ended the month lower than it started. That anomaly jumped out of my own data roll up and I suspect it reflects a producer taking an opportunity to move some inventory overseas.
Industrial pellet production came in at 729,843 tons, a big number but not without precedent. The sector produced more in March (779,786 tons). Monthly utility grade wood pellet production averaged 626,000 tons last year. In the first five months of 2022, monthly utility-grade wood pellet production is averaging just over 700,000 tons. In the past three months, the average is over 740,000 tons. I’d be surprised if utility volume dips below 725,000 again this year. I suspect a run of near-record exports is likely and we may see the first 800,000 ton number as soon as the June data is published. It seems plausible at least, if not likely that this sudden step forward in outbound volume has been catalyzed by the need to backfill the missing 2 million tons of Russian and Belarussian volume.
PFI Board to Gather in Miami in October
This fall the PFI Board of Directors will meet on Tuesday, October 4th in Miami. We’re hosting the board meeting there to take advantage of the U.S. Industrial Pellet Association conference being hosted there, making it a snap for board members that want to attend that conference a breeze.
With all of the activity in the export space and many of our members fielding calls from interested overseas pellet buyers, hosting our board meeting in conjunction with this event makes great sense.
If you are interested in joining our board in Miami, please contact me
—Tim Portz Executive Director
