Wood Fuel Prices – 2Q2012

Last August, we predicted that the US South was on a new trend line for wood fuel prices. Now, one year later, data from the first half of 2012 appears to be further substantiating our claim.

US South wood fuel prices have been on a decline since peaking in 3Q2010 (Figure 1). After accounting for the BCAP effect* in 2H2009-1H2010 and inflation, wood fuel prices have been steadily declining since 1Q2009 with few exceptions. One of these exceptions occurred in 2Q2012. Real wood fuel prices, after declining in 1Q2012, gained $0.12 per ton in 2Q2012 are now back on par with 4Q2011. Nominally, price increased $0.05 per ton to average $19.62 per ton.

Interestingly, this price appreciation occurred in the midst of several factors that should have put downward pressure on price (Figure 2):

1. Supply increased – Supply of residuals was up 3.0% as sawmills increased lumber production over the quarter.
2. Demand decreased – Overall wood fuel purchases decreased by 8.3%.
3. Natural gas prices declined – For mills that have the ability to switch to this alternative fuel source, real prices for natural gas declined 25.8%.
4. Transportation cost decreased – the cost of diesel was down 0.6%.

On the adverse side, and perhaps this is the most positive influential factor, electricity prices for industrial consumers increased 0.4% over the quarter.

Even though $0.12 per ton may just be a bump in the road, it appears by observing the real (red) trend line in Figure 1 that wood fuel prices have reached the bottom of a trough and are back on par with real prices observed in 2007. Going forward, as sawmills slowly increase production and with demand projected to be lackluster, we expect prices to hold at this level for the rest of 2012. But keep an eye on prices for alternative energy. Continued upticks in prices for electricity and any movement on natural gas will increase demand for wood fuel and thus price.

*The Biomass Crop Assistance Program provided government payments for the collection and delivery of wood fuel to bioenergy facilities.

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