Exposing the unseen side of the unplugged lumber price boom

VANCOUVER (Scrap Monster) : The boom in US housing starts has definitely proved to be a boon for the North American wood pellet industry. On the flip side of the story are the price bottlenecks at the supply side and the devastating beetle attacks on the forestry sector.

The wood pellet demand has increased over 60% during the one year period from 2011 to 2012. 2012 witnessed increased demand of North American wood pellets by many European countries including UK, Belgium, and Netherlands etc. the total volume of wood pellet exports from North America to Europe in 2012 was 3.2 million tons, which itself is a new record in the export history of North America. The shipments in 2012 surged by over 100% from US South where as those from Canada witnessed a jump of 25% from the previous year.

On the other hand, the homebuilders’ margins have been severely trimmed. The largest US homebuilders who used to have margins in the range of 15% in 2006 now runs with barely 1% to 7% margins, largely due to the higher lumber prices. The increased demand in new houses may offset some of these high input costs though.

Increased demand for wood pellets by the European power companies has boosted the production of wood pellets. According to the International Energy Agency (IEA), production of wood pellets, commonly used for burning, more than doubled between 2006 and 2010.

The paper companies have become the  scapegoat of the enhanced demand drive. The power companies have turned buyers of even the wood pellets discarded by the home builders. The huge demand crisis has raised the input costs of paper companies leading to further contraction of margins.