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Market Beats 7
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home in the US has doubled in the past 18 months. used for transportation. The larger the draw radius of the pellet
As a result, starts for new private homes in the US have factory (i.e., the larger the factory, or the slower the forests
declined signifcantly since earlier this year. grow at higher latitudes), the more sensitive is the factory to
The drop in demand for lumber has led to a slowdown changes in diesel fuel costs.
in sawmilling output. This is most acute in Western Canada. Pellet producers in almost all locations, not just in north
According to the Forisk Blog: “…in Western Canada, there America, are experiencing similar challenges.

has been at least 1.7 BBF of announced capacity curtailments Housing markets are traditionally cyclical and eventually
in 2022, mostly motivated by increased log prices and falling housing starts will revert to trend. Diesel fuel costs may reset
lumber prices, which reduces or eliminates margins.” at a higher ‘new normal’ which would mean higher costs in
Less output by sawmills cascades into less sawmill every sector in which transportation is needed.
residuals. And lower demand for sawlogs lowers the production
of forest residuals. Russian invasion is still one of the challenges
Adding to the cyclical downturn in the housing market The Russian invasion of Ukraine and the resulting sanctions
are high diesel fuel prices. have roiled every sector of the global economy. Energy markets,
A signifcant proportion of the cost of feedstock delivered including the wood pellet sector, have been strongly impacted.

to a pellet factory is embodied in the cost of the diesel fuel Russia, Belarus, and Ukraine contributed about 15 percent

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