The current supply and market of wood pellets and what it means moving forward.
If you’re reading this, you are most likely a customer of ours, a potential customer, or someone who has a particular interest in wood pellets. Whether it be for fuel, bedding or fertilizer, wood pellets of all species and sizes have become a big part of the UK market, and in some cases a very integral part. With some businesses and households reliant on wood pellets to be able to operate day to day, serving as their main source of energy and heating.
Due to this, the current volatility of the pellet market, and the ever-rising prices and demand, have put a real strain on such businesses and households, without any real explanation as to why it is happening to begin with. We are here to hopefully shed some light on the situation.
Since February of this year, the prices for wood pellets have nearly doubled. We have seen retail prices jump anywhere between 50%-100%. With current projections estimating that we will continue to see smaller, but consistent increases moving into winter. This has been mainly due to the massive cut in pellets and wood material volume in general that was supplying Europe from Russia, Belarus, and Ukraine. Argus Media in a recent article stated that the UK was 240,000t short on wood pellets, stock which needs to be sourced from other countries by the winter. The estimated lost volumes in neighbouring EU countries are quite similar, with countries like France, Austria, Germany, Italy and Belgium experiencing shortages currently. Whereas traditionally high volume exporters like Latvia are struggling to even satisfy local demand, as large amounts of raw material was coming from the three countries mentioned. All of this has had a knock-on effect on the market, as most of these countries must now force their local producers to shift their focus to be able to meet the demand in their own markets, reducing the number of pellets and wood materials destined for export, which further adds to the shortages we are seeing.
European factories who have remained open and are exporting, face rising energy, labor and logistics costs, along with the constant supply / demand equation where they offer product to the highest bidder, either domestically or abroad. At first, most of these factories were increasing their prices every couple of months, as the situation continued to deteriorate, these increases started to happen more and more often, to now every couple of weeks. A few factories have decided to even resort to floating price contracts, whereby the price you place your order at can and will change by the time you receive your order.
We must not forget that there is also a secondary factor which has also influenced prices, not as drastically, but still substantially enough, and that’s the ever-increasing fuel prices. Which does add to the transport costs quite substantially, everything from sea freight to local truck haulage has seen an increase over the past couple of months.
It is important to know that all of this will not be felt or seen immediately if you were to monitor the retail prices for pellets or other wood related products. We must take into consideration the fact that in anticipation of this most companies in the UK and neighbouring EU, had bought quite a lot of stock ahead of time, at older, cheaper market prices, this is the old stock and old prices that are still currently being reflected in the market. As soon as this stock runs out and companies are forced to adjust their prices to the stock bought at more recent prices, the effect will be far more immediate and severe. As the current projections see no improvement to the situation, we must be prepared to witness record prices in the coming months.
Now more than any other time, the importance of buying stock ahead of time must be reiterated, the prices might seem high right now, but they will seem like bargains in a couple of months’ time, and we want to make sure that all our customers and future customers are prepared ahead of time for this.