Wood fuel prices increased by $0.30 per ton in 4Q2012 to an average of $19.76 per ton Southwide.
In December, looking at preliminary data (October and part of November), I predicted they would fall. What was behind the surprising increase?
Market Forces Exerting Upward Price Pressure
- Demand for wood fuel improved, as total purchases by volume were 5 percent higher in the 4th quarter.
- Our regression analysis shows wood fuel prices will experience a change of $0.32 per ton when natural gas prices change by $1.00 per MMBtu. In October and November (December numbers are not yet available), natural gas prices increased by $0.39 per MMBtu.
Market Forces Exerting Downward Price Pressure
- Pine pulpwood (internal bark) purchases increased by 1.16 percent during the period. This means that an additional supply of bark was available for energy production.
- Pine secondary chips (sawmill residues) were also more abundant, a result of increased lumber production to meet demand from an increased number of housing starts. Purchase volumes for the pine secondaries increased by 1.96 percent in 4Q2012.
- Our regression analysis shows that wood fuel prices experience a change of $0.42 per ton when electricity rates rise by $1.00 per MMBtu. In October and November (December numbers are not yet available), electricity prices dropped $1.29 per MMBtu.
The Real Driver of Wood Fuel Price Change in 4Q2012
The answer in this case turns out to be much more straightforward: the major driver of higher wood fuel prices can be found simply by breaking out the individual price components from the total delivered price into wood raw material costs and freight costs.
In the 4th quarter, wood raw materials costs fell an average of $0.06 per ton. Freight costs, on the other hand, were higher, up $0.36 per ton, in response to higher diesel prices.
Despite a freight-induced bump this period, wood fuel prices are likely to continue their downward trajectory (above figure), as lumber production to meet housing demand increases supply and as more tracts become available for harvest creating more in-woods fuel supply.