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Wood Pellet Opportunities and Risks Abound: Pallet Companies Share Insights to a Successful Program
Wood Pellet: Pallet manufacturers and other experts share their insights on the keys to success in the wood pellet business including process requirements, potential regulations, European market demands and much more.
By Rick LeBlanc
Date Posted: 2/2/2015
Wood Pellet Opportunities and Risks Abound
Wood Pellet: Pallet manufacturers and other experts share their insights on the keys to success in the wood pellet business including process requirements, potential regulations, and European market demands.
Biomass energy has been “buildng a head of steam” for the last several years, yet to the general public, and perhaps to many in the pallet industry as well, biomass is still an emerging giant. The title of a recent article from National Geographic, The Energy Boom You Haven’t Heard About: Wood Pellets, emphasizes the state of low public awareness about the biomass industry, particularly wood pellets.
To be certain, biomass is on the uptick. How it translates into opportunities or threats for the pallet industry, however, remains a work in progress. A small number of wooden pallet companies have ventured into wood pellet production, while other operators have reported increasing their fiber sales into the boiler fuel market. Meanwhile in Europe, wooden pallet operators have taken issue to government subsidies of wood pellets that they say have caused pallet lumber shortages and price increases.
“In the past legislative period, we lost between 3-4% of jobs a year, as a result of non-level playing field policies between our labour intensive sector and the heavily subsidized energy sector,” Marc Michielsen, FEFPEB executive committee member, commented last October at the 2014 FEFPEB Congress.
In North America, however, biomass seems to be more of an emerging
opportunity than a threat. And for the wooden pallet industry, selling into the biomass market isn’t new. It was just less commonly referred to as to as biomass versus terms such as hog fuel or boiler fuel. Back in 2003 I wrote a Pallet Enterprise article about pallet fiber
options that included reference to some companies that were selling into boiler fuel markets.
At that time, a key component of the value proposition for grinding was in reduction of material to drastically reduce the volume and cost of transporting wood waste to the landfill, or so it would be accepted at landfills that would no longer take solid wood. The demand for wood fiber then, as now, is very much a function of location.
Aside from pulp and fiberboard, other non-biomass markets for fiber include landscaping mulch, animal bedding, playground cover and other applications. In a few cases, pallet companies have built operations based on upcycling wood fiber, notably Litco, which generates over 600,000 presswood pallets and related products annually from over 20 million pounds of pre and post-consumer fiber (2012 numbers), or Rehrig Pacific Logistics, which in 2012 launched a plant dedicated to create fiberboard from its waste wood.
Aside from proximity to local markets, fiber quality is also a key concern. “Much depends on the location, and if you are in close proximity to consumers of biomass or clean wood chips,” stated, Hakan Ekstrom of Wood Resources International LLC (www.woodprices.com).
“If the plant can sort out the clean chips so they can be used by a pulp mill or by a manufacturer of wood-based panels, there should be good opportunities to sell the chips for a good price in 2015,” Ekstrom explained. “If the chips are dirty with high bark content, or if the chip sizes are too big or small so pulp mills can’t use them, it would be ideal for a biomass-consuming plant if the delivered cost is right.”
Much of the biomass expansion in the past 5-10 years he noted has been in California and New England, but Ekstrom is also seeing increased demand in the Northwest and the South.
As for the question of recycled old pallets (post-consumer wood) versus waste from clean wood, he emphasizes that new wood has a cost advantage, but it comes down to quality control and the local marketplace.
Ekstrom said, “(It) … depends on the market price for wood fiber. If the pallet wood or chips from pallets are clean, they can be used for making pulp, pellets or for fuel. Since it can be fairly expensive to make sure that the wood is clean it has not always been competitive with other fiber sources for pulp and pellet manufacturing. But all depends on the cost for the clean pallet wood versus pulpwood and sawmill chips.”
Pellet Production as a Value-Added Product Line
For one company, the move into biomass and wood pellets came as a result of the overall success of wood products companies within the region in diverting wood waste into the landscaping much sector.
“The mulch market in Iowa is inundated,” explained Shane Thompson, pallet division president for WestWind Logistics, LLC. “Companies have been doing too good of a job pulling wood away from landfills.”
In the Midwest, it came to the point in recent years that Westwood was barely covering costs in shipping loads of mulch. As a result, Westwood decided to sell its mulching equipment to another company a few years back, and signed an agreement to supply them with material for a period of time.
Early in 2014, and with the previous fiber contract terminating, WestWind decided to take control of their own destiny by installing a wood pellet operation. The company targeted the consumer market, and is producing a bagged premium pellet which is sold through big box retailers.
Production began in December 2014 on the machine, which produces three tons per hour, or 40- 50 tons each day. Thompson stated that the material, which is fed into the Rotochopper EC-366 and then through the pellet machine, is almost exclusively made from old pallets, except for a few trim ends.
Thompson said that there is very little sorting required for incoming material, except for removing any composite board material from the inflow. Moisture content is typically very low (less than 13%) thanks to the nature of recycled pallets, as well as the fact that WestWind operates in what Thompson refers to as a “real time” production environment.
At Westwood, Thompson indicated that there are not “piles” of material building up. It is more of a steady flow. This means that wood for the grinder does not sit long enough to get wet or dirty, resulting in a cleaner, drier material for pellet manufacturing. Because material is relatively dry, Shane observes, the cost of drying fiber isn’t a significant issue.
Thompson reported that WestWind is excited about the pellet line, and is anticipating a 3.5 year return on investment.
Another company that has moved in the direction of wood pellets is Buckeye Diamond Logistics, through its Easy Heat subsidiary. Launched in 2010, Easy Heat targeted the production of pellets for residential, commercial and industrial applications. According to the Buckeye Diamond Logistics website, Easy Heat has pellet operations in South Charleston, Ohio, Indianapolis, Indiana, and Bensalem, Pennsylvania.
Growing Interest in Boiler Fuel
Outside of the high growth regions for biomass, local demand can also create pockets of opportunity. Mueller Pallets LLC., of Sioux Falls, South Dakota, for example, sells almost all of its shredded wood waste as biomass fuel to POET LLC, one of the world’s leading ethanol producers. POET operates a plant in Chancellor, South Dakota. The long term relationship between the two companies began back in 2007 when Mueller began supplying biomass to the plant. Featured in the January 2015 issue of Pallet Enterprise, Mueller noted that the only materials that they cannot send are creosote and green treated lumber. Additionally, some wet product is used for landscape mulch.
Likewise, one Canadian pallet company that has experienced the growth of biomass market spoke to Pallet Enterprise anonymously about emerging opportunity for biomass sales. A supplier of both new and recycled pallets, the operation has been grinding residuals for over 15 years. In the early days it had to give away its material.
“It was a difficult prospect to get anyone to buy anything,” one of the company’s owners recalled. “We gave it away to landscaping material to dealers with the simple request that if they could sell it, please pay us something.” Over the years the business slowly grew, but the electrical rates set by the provincial electrical authority deterred the growth of woody biomass.
About four or five years ago, however, the market took a noticeable positive turn when the price of coal went up. As a result, more local heavy industrial users switched to burning wood fiber, and a steady business was created. “Business has really picked up in the last three years,” the pallet company operator stated.
Importantly, the industrial users created a year-around demand for biomass energy, something that kept material moving and not building up excessively, like it had during the cold season in their landscaping mulch operations. “With colored mulch, the season in Canada is only 5 or 6 months if you are lucky,” noted the Canadian pallet operator. He characterized that part of his fiber sales as “hit or miss.”
Questioned about different strategies for trim ends and other new lumber material versus recycled pallets and other post-consumer wood, the operator explained that the new wood and the post-consumer wood are ground at separate locations, to ensure that the clean wood is not contaminated by the old wood. The off-site location is run as a joint venture with another wood products company. The pallet company sends its new material to that location, and processes all of the post-consumer wood at its main site.
Separation of the two sites was done to ensure product integrity. As the company markets the new fiber as playground material, he feels it is important to keep the old wood out, as one can never be sure of past contact with chemicals.
The playground material is of higher value, and is shipped greater distances. The boiler fuel component is less costly, and is sold into the local market. And while there are local wood pellet producers, the pallet company does not typically sell into this market as the pricing isn’t very good. Overall, he says that at only 11% moisture content and giving off 8,000 BTUs, their fiber is a premium product that performs as well as low grade coal.
Know Your Target Markets Ahead of Time
Before entering any market, it is important to first understand customer requirements, and in pellets, this is the case as well.
Chris Wiberg, manager of biomass energy laboratory and quality services for Timber Products Inspection, cautioned wood pellet producers to understand variations in specifications, quality control, and logistics between domestic and European markets. For a North American plant that sells totally into Europe, this is less likely to be an issue. But for a plant that sells domestically and is looking to stretch overseas as well, differences in quality testing requirements, pellet sizing and color, and even pallet size requirements for bagged product being shipped to Europe, may prove to be problematic. The producer must learn to adapt to the requirements of the target market.
And one note of caution from Wiberg, he added that the pellet industry is anticipating that the Environmental Protection Agency will regulate residential wood combustion appliances in the very near future. This in turn could impact fuel pellet quality requirements. It is expected that the new rule will reference the PFI (Pellet Fuel Institute) quality scheme, which may have a bearing on the consumer pellet market.
To summarize, the emerging biomass market in some locations is providing a welcome alternative to other options, such as landscape mulch. This might be an alternative that pallet companies should evaluate as the market continue to grow. It all depends on local conditions and your desire to take on something new and challenging.