It was not a good year for pellet stove sales, and few are expecting any better in 2017. Even so, roughly 1.8 million pellet stoves have been shipped by manufacturers in the U.S. over a 31-year period. It’s anyone’s guess how many remain in use today, but those that are in use will need pellets this year. The big questions are:

• Will we have a winter in 2017/2018?
• Will pellet fuel be readily available?
• Will pellets be competitively priced with other home-heating fuels?

The bottom line answers are: maybe, yes and maybe. In other words, the residential pellet fuel market for 2017 may be similar to last year, weak in the East and hopefully strong in the West.

Cold weather is the primary driver for residential pellet fuel sales – no winter, no sales. In 2016, it was a warm winter in the East and a colder winter in the West, giving rise to sparse pellet sales in the East and record-breaking sales in the West.

Bruce Lisle, CEO and founder of pellet producer Energex Corp., says that two record-warm winters in a row in the East are an anomaly, so he predicts a cold winter in 2017-2018. Unfortunately, there is little consensus on what this winter will bring.

The National Weather Service (NWS) predicts a 50% chance of an El Nino through early 2018, a condition that will bring warmer-than-average temperatures to the western and northern U.S., and a warmer, wetter season to the Northeast. The NWS predicts “probably” above-normal temperatures through March, 2018.

Note: These are not the changes in heating fuel prices but are the EIA’s forecast of the increases in what the average consumer heating fuel bills will look like based on forecast fuel costs and NOAA forecast heating degree days.

The Farmers’ Almanac predicts that “unsettled” weather will be on the rise from coast-to-coast by late November into December, with unseasonably mild weather over the Christmas holidays in the eastern half of the country.”

“Yet the U.S. Energy Information Administration (EIA) says that the National Oceanic and Atmospheric Administration (NOAA) forecasts temperatures to be much colder than last winter east of the Rockies, with the Northeast and Midwest to be 17% colder, the South to be 18% colder and the West to be 2% warmer. So this winter is anybody’s guess.

Gordon Murray, executive director of Wood Pellet Association of Canada.

Another driver of pellet fuel sales are the prices of other residential heating fuels. According to the EIA, wood pellet fuel may be more competitively priced this season.

The EIA also points out that the number of U.S. households using cordwood or pellets as their primary heating fuel has increased 26% since 2005 to 2.5 million households.

“As long as the price of heating oil is low, the consumer doesn’t think about the environment,” says Gordon Murray, executive director of the Wood Pellet Association of Canada, “and right now we’re seeing wood pellets costing the consumer 25% more than heating oil.”

Seth Walker, economist for RISI.

“This was the second warm winter in a row for the Northeast,” says Seth Walker, associate economist for Bioenergy for Resource Information Systems Inc. (RISI), an international analyst and consultant to the forest industry. “A lot of mills had excess inventory to start the year and the warm winter did not clear that out. Even with many mills curtailing production, the season still ended with excess inventory in the East. In the meantime, the West had a great sales year because of a cooler, wetter season in the Pacific Northwest.”

“We really had no winter in the East, but the law of averages says this winter is likely to be cooler,” says Stephen Faehner, CEO and president of American Wood Fibers, echoing Bruce Lisle’s thoughts. “Over supply is a big deal this year in the East. There is a massive amount of pellet fuel inventory at every level, producer, dealer and consumer.”

American Wood Fibers plant in Circleville, Ohio.

Stephen Faehner, president and CEO.

The price of pellets has historically been extremely consistent and stable when compared to other fuels, says Faehner. “We think pellet pricing will stay steady and solid, but some producers, those on their last legs or using ‘junk’ raw materials, are offering prices lower than ever, and this is putting downward pressure on pellet prices in the East. Our pellet sales last year were off almost 40% in the East, and now we’re dealing with propane at less than $1 a gallon and #2 heating oil at $2 a gallon.”

On the brighter side, Faehner says a “really exciting and emerging growth market for wood pellets is the many new grills fueled by wood pellets.

“It was a struggle last year to move pellets, especially after two years in a row without a winter,” says Lori Hamer, president of Hamer Pellet Fuel. “Early-buys this year are non-existent, and even though we have inventory, we’re still producing because of our existing sales contracts.”

Hamer Pellet Fuel, Elkins, West Virginia.

Lori Hamer, president of Hamer Pellet Fuel.

Hamer expects pricing in the East to be “very low” this season because of the large carryover inventories. “There are lots of deals to be had,” she says, “but that can change quickly if we get a cold winter. Even so, it may take until early 2018 for pricing to stabilize at normal levels.”

“We had our best sales season ever at our western facilities,” according to Ken Tucker, chairman of Lignetics, “but our sales in the East were way off, so overall our sales were a push. Fortunately, we don’t have all our eggs in one basket, all in the West or all in the East, so if one coast has cold weather and the other one doesn’t, we’re okay. Last year really drove that home to us. Before 2016, the East carried us with two-thirds of our business. Last year it was the opposite.”

Pacific Coast Pellet, Shelton, Washington.

Stan Elliott, Sales and Marketing for Pacific Coast Pellet.

Already with multiple mills in the East and in the West, Lignetics recently purchased Marth Wood Shaving Supply, Marathon, Wisconsin, which now gives Lignetics a total of nine mills and a trucking company.

Tucker thinks supplies in the West will hold up since there is little carryover inventory. After tight supplies in the West last year, he says people are buying early this year on the West Coast. But he is concerned that cold weather may not materialize in the East.

“It may be a buyers’ market in the East,” he says. “Even with so much fuel around, some suppliers just kept producing, and some suppliers may be selling below cost. There is nothing on the heating fuel horizon to allow us to raise prices. With downward pressure on prices in the East, I’m concerned about the message the consumer will hear. With low prices this year, they may feel they have been screwed in the past. And it may affect our ability in the future to get prices back to normal.”

“Last year was really the tale of two coasts,” according to Stan Elliott, Sales and Marketing “guru” (yes, he claims his title is “guru”) for Pacific Coast Pellet, and incoming chairman of the Pellet Fuels Institute (PFI). “The West was sold out with its best pellet sales in five or six years because of a colder-than-normal winter after two unseasonably warm winters. But the East had a dreadful year with tens of thousands of tons of carryover inventory, mostly at the mills. Seems like we always have enough pellets, but sometimes they are on the other coast.”

While Elliott makes no weather predictions, he points out that some Big Box stores this year are “committing” to double their pellet fuel purchases of past years.

Pellet pricing should be “stable” for most, says Elliott. “Panic sellers and cheap producers in the East have dropped pricing to retailers an average of $10 a ton. Retailers are not passing on the savings to the consumer but are pocketing the extra margins. In the West, we cannot afford to raise prices.”

Elliott says that the Northeast States for Coordinated Air Use Management (NESCAUM), an organization to “provide scientific, technical, analytical and policy support” to air quality and climate programs in the eight states of the Northeast, is actively promoting pellet stoves when burned with PFI-qualified fuel.

Michelle Reeder, managing director of the PFI, points out that the PFI’s fuel certification program is “gaining traction” and acceptance with consumers and regional air quality groups such as NESCAUM. “Even the Big Box stores are feeling the pressure to offer qualified fuel,” she says. The PFI recently announced that 20 pellet manufacturers totaling 33 mills are now qualified for the program. “The majority of the fuel for the residential, bagged market in North America is now PFI qualified.”

While, for the last few years, the vast majority of wood pellets produced in North America have been bulk, industrial grade product exported to Europe, primarily from mills in the Southeast, that market is slowing, says RISI’s Seth Walker.

“The export market is stagnating for North American producers as more European mills come on line. We’ll see a lull in exports for the next two or three years until the Asian market for wood pellets develops.”

Canada alone exports 150,000 to 200,000 tons of pellets, according to the Wood Pellet Association of Canada’s Gordon Murray. “Europe had a cold 2016 winter as indicated by pellet stove sales in Italy, the largest European pellet stove market, increasing 30% last year. But there is much more pellet fuel production capacity now in Europe, including new mills in the Balkan countries.”

Sales of pellet stoves and pellet fuels are the biggest crap shoot in the hearth products industry. Since sales of both are so dependent on cold weather and low heating fuel prices, sales of stoves and fuel are a gamble on things that can’t be controlled. Let’s hope Bruce Lisle is right about a cold winter in the East.