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Hearth & Home May 2019

Spotty & Steady

By Bill Sendelback

Pellet fuel availability has been spotty; pellet stove sales have been steady.

The pellet industry – appliances and fuel – has always had its ups and downs, both in demand and supply. It simply is an industry that is very dependent on heating-fuel prices and cold weather. The consensus among pellet stove manufacturers is that 2018 was a good sales year, with some reporting very strong sales of pellet stoves. Most expect 2019 to be even better.

The U.S. Energy Information Administration (EIA) reports that U.S. households using cordwood or pellets for primary residential heat has increased 26% from 2005, to top 2.1 million, or 2% of U.S. households, in 2017; another 8% use wood or pellets for secondary heat. While vented gas hearth appliances now represent 49% of hearth products sales, and wood stoves account for 28%, pellet stoves now top 12%, according to Hearth & Home magazine’s recent survey numbers. According to that same survey, the average retail price for a wood stove is $2,446 while the average price for a pellet stove is $3,292.

With cold weather having a strong affect on both pellet stove and pellet fuel sales, the National Oceanic and Atmospheric Administration (NOAA) forecasts 2019 temperatures in the U.S. to be “similar to both last year and the 10-year average.” NOAA also forecasts heating degree days (HDD) to average only 1% more than last year.

The EIA’s forecast of heating fuel prices may offer some optimism for pellet stove sales, especially in the Northeast with its dependence on heating oil. The EIA forecasts “slightly higher prices” than last year for heating fuels, with heating oil prices forecast to increase 18%. The EIA forecasts that the expenditure for heating fuel for the average U.S. household will increase 20% if heating with heating oil, 5% with natural gas, 1% with LP, and 3% when heating with electricity.

It was a “good” pellet stove sales year for Acadia Hearth, according to Kent Roeder, general manager and vice president of Sales and Marketing. “If we had been able to keep up with demand, it would have been an excellent year. Our distributors held off on their early-buy orders, and when their in-season orders finally came in, we could not catch up.” Acadia’s distributors seemed to have learned their lesson because the company’s 2019 early-buy orders already are up 30%.

Acadia is “revamping” its Breckwell brand pellet stove line, including styling and features. All Breckwell pellet models are EPA 2020 compliant. New to the Breckwell lineup is its Traverse pellet stove, a gravity-fed model that doesn’t need electricity. It uses a 47-lb. hopper capacity to offer 24-hour burn times. Its EPA certification shows 0.47 gph of emissions.

In a marketing redirection, Acadia no longer is offering its Breckwell line to mass merchants. “We’re now focused only on specialty hearth dealers,” says Roeder.

Sales of Harman brand pellet stoves and inserts increased in 2018 for the third annual increase in a row, according to Karen Harman-Smeltz, Harman brand manager for Hearth & Home Technologies (HHT). “So far, 2019 is steady with 2018, but we’re aligning our marketing tools to exceed 2018 sales.”

Harman's Allure 50 pellet stove.

Harman has historically offered traditional-styled pellet models, but over the last four years HHT has introduced cast-iron, transitional models, balancing traditional with contemporary design elements. The latest in this line-up is Harman’s Allure 50 pellet stove.

Most of the Harman offering is painted black, but “it’s a must to have color choices for consumers,” according to Smeltz. “Our porcelain Majolica Brown is tops in North America, while porcelain Frost leads in Harman’s international markets.”

All Harman pellet products are EPA 2020 certified with the temporary exception of the P35i pellet insert that is being overhauled from traditional to transitional styling, and including performance improvements. It will become the P40i, to be launched with 2020 certification later this year. Harman’s current pellet appliance lineup is 10 models including three steel units, four cast-iron stoves, one modern model, and two fireplace inserts.

It was not a “banner year” for pellet-stove sales at Napoleon Fireplaces, says John Czerwonka, vice president of Hearth Sales. “Sales were flat, even anemic. The market seemed driven by new products and price-point models. Our moderate-priced models did better than our more expensive units.”

All Napoleon pellet models are 2020 compliant, and no other new pellet stoves are planned for this year.

Pacific Energy's TN 40 freestanding stove.

Pellet stoves are not a big part of Pacific Energy Fireplace Products’ hearth business, but it does offer a TN 40 freestanding stove and TN 40 fireplace insert, both 2020 certified, in the company’s True North price-point brand. “The pellet stove business continues to be volatile and somewhat unstable,” according to Cory Iversen, North American Sales manager. “We want to develop more pellet models, and at some point we will turn back to pellet stoves. But for now we are concentrating on our Pacific Energy and Town & Country brands of wood and gas products.”

Pacific Energy also formerly distributed the Piazetta brand of Italian pellet stoves; sales results on those high-end European models were mixed. “We had a friendly, joint separation, and Piazetta now is marketing its products on its own here in North America,” says Iversen.

Stove Builder International (SBI) had “one of our best” pellet stove sales years with its Osburn brand for two reasons, according to Marc-Antoine Cantin, president. “We introduced new models late in 2017, and we offered lower price-point models. We were not surprised at the great sales after the cold winter of 2017-2018. But reasonable LP prices held down pellet-stove sales somewhat.”

With all of its pellet models 2020 certified, SBI is “bullish” on 2019. “This NSPS has been a nightmare for everyone. And with this sell-through factor, it will be impossible for dealers to finish with zero Step 1 models.” Like most manufacturers, SBI has concentrated on meeting the 2020 NSPS deadline, so is offering no new pellet models.

SBI's Osburn 2500.

Ravelli USA is part of AICA, a huge Italian manufacturer of hearth products. AICA was purchased in November 2018 by OpenGate Capital, a global, private-equity firm, that in March 2018 had purchased the Jøtul Group. The AICA products, including Ravelli pellet stoves, are now part of the Jøtul Group. In North America, Ravelli will continue as a stand-alone brand in the Jøtul Group, headquartered in Norwell, Massachusetts, with a warehouse in Pennsylvania.

For most of North America, pellet fuel shortages were not a concern. But in some pocket areas, pellets were scarce or almost unavailable. The Pellet Fuels Institute (PFI) hoped for a strong 2018-2019 sales season with plenty of fuel inventory. “Carryover inventories were low, early-buying signals were strong, and retailers were reporting stronger-than-normal pellet appliance sales,” according to Tim Portz, PFI’s executive director. But things changed going into the sales season.

Chinese tariffs on U.S. hardwoods caused sawmills to cut back production, reducing raw materials needed for pellet fuel. Then heavy rains in the forests of the Northeast kept loggers out of the woods, further reducing raw materials for pellets.

“In 2018, concerns over tight fiber inventories started to surface in late summer,” says Portz. “Pellet inventories now are tighter than most would like. It looks like we’ll be rolling into the spring and summer inventory build-up period playing a bit of catch-up.”

“In 2017, the industry had 340,000 tons of pellets in inventory before the season,” according to Bruce Lisle, president of Energex Wood Pellets. “Last year, 2018, we only had 100,000 tons of inventory,” he says. “With a colder and longer winter, and timber not being able to be harvested because of the wet forests, we saw raw material shortages and spotty pellet outages. It was interesting last year, and it will be interesting this year.”

Speaking of “spotty” fuel shortages, “We had a great pellet stove sales year. We were overwhelmed and could not keep up,” according to Keith Bond, owner of the retail store Valley Stove & Chimney in Loomis, California, “but at the same time we had a big shortage of pellet fuel. Regarding our pellet stove purchases, we’re only buying 2020-compliant models, but we’re concerned that our competition will be selling Step 1 models at blow-out prices.”

“Yes, last season there was some ‘tightness’ out there in the availability of pellets,” said Stephen Faehner, CEO and president of American Wood Fibers, “but the industry has lots of capacity, and there was always fuel available if dealers wanted to look at pellet suppliers outside of their area.” Faehner says there is no pellet fuel inventory carry-over going into 2019, and he predicts all fuel produced this year will be sold.

Dealers probably will see some pellet-fuel price increases this year, according to Faehner. “Raw material costs will not go down, and freight costs are a huge, increasing issue. Pellets for fuel are only 10 to 15% of our total pellet production (pellets for animal bedding is Faehner’s main product), and we have barely broken even on pellet fuel since 2005.

“Fuel manufacturers are not getting much return on their investment. The Big Box stores have made pellet fuel a commodity, selling fuel as a loss-leader to get people into their stores. Dealers need to start selling the value of pellets as the cleanest and most convenient fuel.”

Faehner also points out that an upcoming regulation on diesel fuel used in maritime shipping will affect heating oil prices. “For maritime use, shippers have been using the cheapest fuel. But as of 2020, ships worldwide will be required to use low-sulphur fuel, putting a crush on diesel prices. Even now future diesel contracts are being lined up, and this is now affecting prices of our heating oil.” That may be a reason for the EIA’s forecast of an 18% price increase in heating oil for this year.

“You hit the nail on the head when you referred to the Chinese hardwood tariffs and our wet forests affecting our fuel production,” says Lori Hamer, president of Hamer Pellet Fuel. “This has really hurt our lumber business since we can’t get logs out of the forests. We can’t get the raw materials we need, and there is stiff competition for what raw materials are available.”

With an early and cold winter, Hamer had a “great” 2018 pellet fuel sales year, selling out the company’s production. “We will still have limited raw materials for 2019, and there may be some shortages, so we hope customers will buy early.” Hamer also thinks there will be price increases on pellet fuel. “We’ll probably see that because we’ll have to bid for our raw materials.”

Hamer also is making pellet fuel for the rapidly-growing pellet grill market. “We offer this in four wood flavors, but we make these pellets using specific wood species rather than using additives for flavor.”

That rapidly-growing pellet grill market was witnessed by the huge number of pellet grills on display at the recent HPBExpo. Jeff Thiessen, president of Louisiana Grill/Dansons, said at the PFI breakfast at the Expo that there already were one million pellet grills in use in North America, using an average of four to six 40-lb. bags of pellets a year. Hearth dealers surveyed for Hearth & Home magazine’s recent Buyer’s Guide reported that 42% of dealers saw sales increases in pellet grills, while only 33% saw sales increases in gas grills.

If all goes according to plan, there will be plenty of 2020-certified pellet stoves and plenty of pellet fuel to feed them. But knowing the unpredictable pellet industry, we can only hope.

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