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Wood Fuel Prices – 4Q2011

Wood Fuel Prices – 4Q2011

When consumption of a class of wood fiber increases, demand is generally stronger; and when demand is stronger, prices generally rise.

There are exceptions to this rule, however, and one of them occurs when a consumer has the ability to substitute one feedstock for another. During 4Q2011, wood fuel markets were characterized by higher consumption volumes and lower prices, primarily because the costs of substitutes—natural gas and electricity—also fell.

Wood Fuel Consumption Volume: Open market wood fuel purchase volume increased in 4Q2011. According to F2M’s Forest2Mill service, which tracks both pulpwood and wood fuel mill receipts, internal wood fuel consumption (i.e., wood fuel generated as a by-product of pulpwood chipping) decreased 1.7% in the 4Q2011. In addition, sawmills produced 5.4% less sawmill residuals and bark. Because of the shorter supplies of these two types of wood fuel, mills were forced to the open market to purchase 7.0% more volume than they did in 3Q2011.

Wood Fuel Price: While consumption volume increased 7.0%, prices fell by 1.0% (Figure 1). In 3Q2011, the weighted average wood fuel price was $20.60/ton; by 4Q2011, prices were down $0.28/ton to average $20.32/ton. This reflected a $0.21/ton decrease in the cost of the wood fuel and a $0.07/ton decrease in the costs of transporting and handling of the material. Compared to the same period last year, delivered prices for wood fuel were down $0.31/ton. This includes the cost of the wood fuel itself, which decreased by $0.70/ton and the cost of transportation and handling, which increased by $0.39/ton.

US South Delivered woodfuel-prices 2006Q2-2011Q4

This drop in price in the face of higher demand can be attributed to the price of wood fuel substitutes. According to the US Energy Information Administration, the price of natural gas sold to industrial consumers fell 7.6% from 3Q2011’s average to an average $4.56/thousand cubic feet in 4Q2011 (Figure 2). In addition, retail electricity sales to industrial consumers fell by $0.68/kwh or 8.8% to average $6.71/kwh.*

Contributing Factors US South Delivered Wood Fuel Prices 06Q2-11Q4

Interestingly, Figure 2 also illustrates just how inexpensive wood fuel is compared to natural gas and electricity. As the housing market recovers over the next two years—and more in-woods wood fuel and sawmill residuals are available—supply in the market will increase, and consumers will likely purchase even higher volumes of wood fuel.

What will be interesting to see is the demand side of the equation, specifically how demand from the bioenergy market will interact with traditional pulp and paper consumers. If this demand picks up, as it is scheduled to do over the next three-year period, the gap between the price for wood fuel and that of other sources of energy could begin to close.

*EIA averages represent October and November 2011 prices only. December data was not available at the time of publication.


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Wood Fuel Prices – 4Q2011 | Forest Business Networ

02-20-2012

[...] Wood Fuel Prices – 4Q2011 By Daniel Stuber - FOREST2MARKET [...]