TECHNICAL RELEASE 12-R-10
Chips: procurement/availability
INTRODUCTION:
This Technical Release presents information updating FRA publications 08-A-3 and 10-A-2 that detailed the hardwood sawmill residual chip availability at Appalachian fiberconsuming mills for the period 2002 to 2008. This update extends the results to 2009 and 2010.
GENERAL FEATURES:
Each of the 10 participating mills was e-mailed a survey in the Spring of 2011, requesting that they update their data for 2009 and 2010. The survey update was patterned closely after the previous surveys (covering the period 2002-2008). Total annual hardwood usage, which is a combination of hardwood chips and roundwood pulpwood, was determined by weighting each mill’s annual chip receipts by the individual mill ratio for chips versus hardwood usage; these results are summarized in Table 1.
Of particular interest is the steady decline of hardwood chips as a percentage of total hardwood usage. Over the nine-year period, that proportion has fallen from 45.77% to 27.06% (the low point of 26.77% occurring in 2009). Also, total hardwood furnish peaked in 2005, then dropped off about 4% in 2006 and roughly stabilized at this level through 2008. In 2009 there was a 13.1% decline in the proportion of hardwood furnish in chips, followed by a 12.6% resurgence in 2010. Apparently the mills relied on procuring increasing volumes of roundwood pulpwood to offset chip supply shortfalls, with the more severe economic situation in 2009 causing a broader decline in total hardwood furnish. The indication, which matches prevailing perceptions, is that declining chip supplies are a function of reduced lumber production and competition from other markets.
As one would expect, delivered price increases were a relatively common reaction to reductions in chip availability, particularly with active competition from alternative markets. Using 2002 as the base year, cost per ton of sawmill chips increased 40.4% by 2010. The number of chip suppliers is directly related to overall available supply, particularly with the depression in the hardwood lumber markets. The trend in suppliers mirrors the overall trend in chip receipts, with a 36.7% percent decline in suppliers occurring between the peak in 2004 and 2010.
The tracking of bark, sawdust, whole tree chips, and/or any other types of wood residues/biomass that is purchased for fuel/energy purposes and not for paper or fiberboard production was added to the survey in 2009. Specifically, mills were asked to provide annual purchased volumes, number of suppliers, change in price per ton using 2002 as the base year, and the weighted average one-way distance per ton.
Current results showed that only one of the 10 reporting mills was not utilizing wood residues/biomass for energy purposes at any time during the period 2002 thru 2010. In addition, one mill started utilizing biomass for energy purposes in late 2008. Annual volumes of wood residues/biomass reported by the participating mills are summarized in Table 2.
Interestingly, the annual volume of biomass was relatively stable over the period, with the variation between the highest volume (2002) and the lowest volume (2007) being only 7% (even with an additional mill added to the totals in 2008). The volume of chips procured for energy purposes averaged about 51% of hardwood sawmill residual chip receipts, with that percentage growing significantly from 2007 to 2010. The minor fluctuations in biomass volumes over the period are not consistent with hardwood sawmill residual chip receipts nor with the economic changes that occurred during the period. One explanation may be that, from an energy perspective at these mills, these energy feedstocks are not entirely tied to paper/fiberboard production, but rather that the energy needs at the mill are ongoing at some base level.
Table 3 summarizes the other data associated with biomass receipts for energy purposes: number of suppliers, change in delivered price, and one-way transport distance.
The average number of suppliers per mill over the period has remained relatively constant, varying from a low of 37.6 to a high of 43.0.
Price changes during the early portion of the period (2002-2005) closely mirrored those of hardwood sawmill residual chips. Beginning in 2006, biomass pricing began to outpace hardwood sawmill residual chip prices. And, the price increases for biomass continued to outpace sawmill chips to the point that in 2010 the price increases for biomass were more than double the rate of increase for sawmill chips. Transport distances also increased over the period, from about 55 miles to just over 75 miles, or 36.5%.
Neither the number of suppliers nor the transport distance can individually, or even collectively, explain the drastic jump in prices for 2008. Perhaps the most logical explanation is that alternative markets, which increased in number during both 2007 and 2008, played a much larger role in biomass markets—the outcome being that the mills were forced to increase prices substantially in order to maintain supply, with no price relief as biomass markets slowed in 2009 and 2010.
DISCUSSION: With the overall economy continuing to struggle, particularly in 2009, both chip receipts and overall hardwood furnish fell significantly to period lows. Perhaps the most significant trend is in the reduction of hardwood sawmill residual chips as a proportion of total hardwood furnish. Over the entire period, this ratio has fallen from 45.77% to 27.06% (the lowest proportion occurring in 2009 at 26.77%). As a result, the participating mills were forced to compensate for the chip shortfall by increasing purchases of roundwood pulpwood.
As several dynamic, economic forces continue to converge on the fiber-consuming mills participating in this survey, the level of uncertainty about the future is probably the single most important factor in considering how to move forward, as it is for most business sectors. At the time of this writing, it is not clear when the domestic and global economy will begin to improve; that creates a very challenging environment for these businesses.
Curt C. Hassler ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )
President, BalkenTier Consulting
Morgantown, West Virginia 26508
Reviewed by:
Rick Meyer Appalachian/Southwide Region Manager
Tony Macleod FRA Counsel