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The wood pellet industry in North America has grown six-fold since 2004, according to the latest issue of North American Wood Fiber Review (WFR), Seattle, Wash., USA. The dramatic expansion has resulted in higher costs for sawdust and wood chips in the regions with the greatest growth, including the Western U.S. and Canada.

WFR notes that wood pellet capacity in North America has increased from just over one million metric tons in 2004 to more than six million metric tons in 2009, according to a recent report from the USDA Forest Service. British Columbia was the first region to take advantage of inexpensive sawmill residues and to produce wood pellets for the fast growing European market. Capacity in the western province of Canada has not grown much the past few years, so in 2009, it is likely that the U.S. South will take over as the leading pellet-producing region in North America, according to WFR. Much of the investment in pellet capacity in the U.S. South has been driven by the export market in Europe. On the other hand, the second largest producing region in North America, the Western U.S., has so far only sold pellets into the domestic market.

In 2004, the pellet industry was practically non-existent in the U.S. South, WFR continues, and this sector has now grown and will reach a capacity of almost two million tons in 2009. Although these capacity numbers may sound impressive, the actual pellet manufacturing operating rates have been surprisingly low in both the U.S. and Canada, WFR adds. In 2008, production was about 66% of capacity in the U.S. and 81% of capacity in Canada, estimates USDA-FS. Major reasons for the low rates include startup problems for newly built plants, financial difficulties for some companies, and a lack of affordable wood fiber supply.

With increased demand for wood fiber, pellet manufacturers have increasingly had to accept higher-cost wood fiber sources than the commonly used sawdust from local sawmills. More pellet companies are now using wood chips that traditionally have been used by the pulp industry. Partly as a result of the expansion of the biomass sector, wood chip prices, sawdust prices, and woody biomass prices have moved up in the U.S. this fall.

In the U.S. Northwest, sawdust prices have gone up substantially the past five years. In 2004, average sawdust prices were $28/odmt as reported by WFR. These prices reached a peak of $74/odmt in late 2008 and have since fallen, averaging $64/odmt in the 3Q/09. The price increases that have occurred in the Western U.S. are likely to be seen in other regions experiencing rapid expansion of their pellet industries. More information is available online.