The Pellet Industry
By Bill Sendelback
There are some products in the hearth industry that consistently sell well, or at least they sell at a respectable level, year in and year out. Pellet stoves don’t fall into that category.
Pellet stoves need a push, an outside influence, to get started. Pellet stoves need either high heating fuel prices as a stimulus, or cold winter days and nights. In 2019/2020, heating fuel was priced lower than we’ve seen for some time, and the days and nights were comparatively mild.
In 2020, we can add other factors contributing negatively to the sale of pellet appliances – confusion, retail closures, and the economic slowdown caused by the coronavirus COVID-19. Fortunately, there are more than a million and a half pellet stoves being used in North America; those products will need fuel. Add to that a rapidly growing demand for grilling pellets, and pellet mills should have plenty of demand for their products this year.
Pellet stove and fireplace insert 2019 shipments from manufacturers dropped 16% to 60,805 units in North America, according to the HPBA’s latest shipment report. That total includes a 13% decline in the U.S. to 56,970 units and a whopping 39% drop in Canada to 3,835 units. While certainly better than the 20-year low in 2002 of 34,127 units in North America, the 2019 total is down 56% from the industry’s 20-year high in 2005 of 138,456 units.
Pellet appliance sales appear to be continuing on a roller coaster ride.
Since pellet appliances are sold more for heating than for the aesthetics of a fire, the price of heating fuels has a major affect on the sale of pellet stoves. For 2020, the average price for heating oil is expected to be $2.63 per gallon, down from $3.00 in 2019, according to the U.S. Energy Information Administration’s Annual Energy Outlook 2020. LP prices are forecast to be $1.91 per gallon, down from $2.40 last year. Natural gas prices are expected to average $10.24 per MMcF, down from $10.56 in 2019. Prices of electricity are predicted to average 13.05¢ per kWh, up slightly from 13.02¢ in 2019.
Weather is another major driver for the sales of both pellet stoves and pellet fuel. The colder and longer the winter, the better for sales of stoves and fuel. But again, weather this year is not forecast to be friendly to pellet stove and pellet fuel sales.
“The winter months of 2020 could be a mirror of 2019 with similar weather patterns,” according to Drew Lerner, founder, president, and senior agricultural meteorologist for Weather World. “We’re going to have a cool, long winter.”
“We don’t have a true El Niño (unusually warm ocean temperatures in Equatorial Pacific) or La El Niña (unusually cold ocean temperatures) happening,” according to Eric Snodgrass, principal atmospheric scientist for Nutrien Ag Solutions. “The warmer-than-normal water in the northeast Pacific will likely control weather patterns overall, leading to cold air dropping southward into the U.S. more often than not.”
Nobody is really sticking their necks out about forecasting weather this year, particularly into the winter months. The Old Farmer’s Almanac comes closest, but still leaves winter out. It forecasts cooler fall weather in Texas, Oklahoma, New Mexico, and the Pacific Southwest with near-normal temperatures elsewhere. As Eric Snodgrass summed up 2020 long range weather forecasts, “We are playing our cards close to the chest because nothing is very dominant.”
Good news for pellet stove sales is that a $300 federal tax credit is now available on the sale of EPA-certified wood and pellet appliances with a minimum overall efficiency of 75%. This Biomass Tax Credit expires on Jan. 1, 2021, but efforts are underway to increase the amount of the tax credit and to extend the expiration date.
The Environmental Protection Agency (EPA) in a March 11, 2020, announcement on the final NSPS unfortunately did uphold its denial of additional sell-through time for non-2020 Step 1 wood and pellet stoves. Dealers have until May 15, 2020, to sell or give away non-2020 certified wood and pellet burners.
|Traverse from Acadia Hearth/Breckwell.|
Acadia Hearth/Breckwell has no complaints about its pellet stove sales last year, up 25%, according to Shawn Henson, general manager and vice president of Sales and Marketing. “It was a wonderful year for us, and we’re ready for the 2020 season with 13 2020-certified models. Our stoves already met the 2020 standards, so all we had to do was resubmit them to be listed to the new standard.” Included in Acadia Hearth/Breckwell’s lineup is the company’s Traverse pellet stove that needs no electric power yet listed at 0.41 gph of emissions. The company has no new pellet models for 2020.
Henson sees a trend toward more European styling, so Breckwell products that have tended to be more traditional, have been updated to the cleaner, more “sleek” styling of European models. Mirrored glass is now in the doors to hide the burn pot when the stove is not being burned.
Sales of the Harman brand of pellet stoves from Hearth & Home Technologies (HHT) were “solid” for 2019, even with 2018, says Karen Harman-Smeltz, Harman Brand director.
“For the past three years, the Harman brand has been focused solely on pellet products. In our customer research, we know that the majority of Harman pellet stove owners burn their stoves all day, every day, during the winter months, so we’ve made convenience and low maintenance keys to our products.”
With all Harman pellet products 2020-certified and now being shipped, HHT is ramping up its marketing program to promote the $300 U.S. tax credit for wood and pellet burners, hoping that this incentive and a cold fall and winter will stimulate sales this year.
Harman’s recent models have featured clean styling, and these more transitional models are selling “impressively,” says Smeltz. But the brand’s very traditional XXV-TC model is a top seller. “This certainly hints that traditional styling really is timeless in hearth products,” she says. However, sales of the one modern pellet stove in the Harman line, the Allure 50, have “exceeded our expectations.”
Last year Porcelain Dark Blue and Porcelain Black finishes were replaced in the Harman line with Porcelain Twilight, a “slightly more durable, semi-gloss blue/black porcelain color that has proved a winner with consumers,” says Smeltz.
Preparing for the 2020 NSPS standards put “strains” on HHT’s engineering efforts, so the company has not introduced any new Harman pellet burners in a few years. “We are now working on a few new projects, but we’re not yet ready to reveal these,” says Smeltz.
|The IronStrike Winslow Pellet Stove from Innovative Hearth Products.|
Innovative Hearth Products (IHP) always has seen big annual swings in its sales of pellet burners, according to Michael Lewis, vice president of Marketing, “but our pellet stove sales for 2019 were stable with no big ups or downs.” Even though Lewis sees many consumers moving away from wood burners to pellet models, IHP last year focused its 2020 NSPS certification efforts on its wood stoves. With no new pellet burners for this year, IHP offers a pellet freestanding stove and a pellet fireplace insert, both 2020-listed, “tried and true sellers,” says Lewis.
|Pacific Energy’s TN40.|
Sales of its pellet burners have been “pretty steady, not fluctuating more than 10% over the past few years,” says Cory Iversen, North American Sales manager for Pacific Energy Fireplace Products. “We recognize that pellet stove sales always have had ups and downs. It’s a small part of our business, but we’re ready to address any sales surge in that market.”
Pacific Energy offers a freestanding pellet stove, its TN40, and a pellet fireplace insert, the TN40 Insert, in its economy-priced True North brand. “These are reliable, entry level, base models featuring simple, basic technology and low maintenance,” Iversen explains.
Regency Fireplace Products saw “some sales growth” last year with its pellet stoves, says Glen Spinelli, president. “We offer a full range of pellet models, but we don’t see us as being a major player in the category. We don’t see this category growing, but we don’t see it declining, either. Our pellet business is stable.”
Fortunately for Regency, the company filled its seven distribution centers throughout North America with its products before the coronavirus concerns grew, so the company is ready for the 2020 season.
Sales last year of its pellet appliances were “quite good, up 10%” at Stove Builder International (SBI), according to Marc-Antoine Cantin, president. “But we expected that, with a fairly cold winter in the North.”
However, Cantin has reduced his 2020 sales forecast because of the slowdown and concerns caused by the coronavirus. “Discretionary spending is down, and even if new-home construction is continuing, pellet stoves usually are not part of that market. If heating fuel prices continue to decrease, that attacks pellet stove sales more than it does other hearth products.”
Like most manufacturers, SBI last year concentrated “big time” on getting its wood-burners 2020 ready, so other than having certified its pellet models to the 2020 standards, SBI is offering no new models. But one large SBI pellet model, its Drolet Eco-65, offering heat ducting into adjoining rooms, is a big seller, especially in Canada where this model is installed in basements.
|Lopi Deerfield Pellet Stove from Travis Industries.|
Pellet stoves are a “steady category” for Travis Industries, and 2019 was a “good sales year,” says Kip Rumens, vice president of Sales. “With the economy as strong as it was last year, we did well with our pellet stoves. We think 2020 will be a solid sales year, a good year for wood and pellet products. With the concerns about the coronavirus, we think consumers will be thinking about being more self-reliant. Some are looking to wood and pellets after hearing about possible and actual bans on natural gas.”
Rumens points out that Travis’ preparation for 2020 will be critical to the company’s sales success this year. “We got our products 2020-certified well in advance, and we’ve been proactive with our non-2020 inventory and helping our dealers with their sell-through of non-2020 models.” As a result of preparing for 2020, Travis, like most manufacturers, is offering no new pellet models this year.
With very few shortages of pellet fuel last year, Tim Portz, executive director of the Pellet Fuels Institute (PFI), predicts that “by June, we’ll have 100,000 tons of pellets on the ground, ready to ship. Consumers this year will have pellets.”
Last year was a record sales year for the pellet industry, says Portz, selling 2.3 million tons, totaling $380 million, up $100 million from 2016. “The industry exited the 2018 heating season with virtually no inventory on the ground. Production levels now are at an all-time high, which has allowed the industry to avoid shortages – so far.”
The PFI estimates that the typical pellet stove now in use in North America consumes an average of three tons of pellets a year with a 2019 average retail price of $250 per ton or a cost of $19.05 per million Btus. Heating oil would have to be priced at $2.05 per gallon and LP at $1.36 per gallon to be competitive, says the PFI. This year, heating oil is expected to be priced at $2.63 per gallon and LP at $1.91 per gallon.
The fastest growing segment of wood pellet sales is specially formulated pellets for grilling and smoking, says Portz. “This is the hottest market opportunity in the hearth, patio, and barbecue category. This market has skyrocketed in the last decade.” Industry estimates of the annual amount of wood pellets produced and sold for grilling ranges from 100,000 tons to 200,000 tons, and most pellet producers now are manufacturing grilling pellets.
Pellet grill and smoker manufacturers also see this category as a massive success. “Pellets are growing, gas is shrinking,” according to Luke Edgar, vice president of Traeger Pellet Grills. “In five to 10 years, pellets can overtake gas.” Jeff Thiessen, president of Dansons, agrees, saying, “We believe the pellet category will become bigger than gas.”
Big news for the pellet industry is that the March 11, 2020, EPA announcement of the final NSPS deleted the majority of its minimum pellet fuel requirements, deferring to the PFI’s existing quality standards program or similar third-party program. The PFI continues to work with the EPA to define and eliminate NSPS wording regarding prohibited raw materials allowed in pellets.
|Chris Wiberg, Timber Products Inspection|
The PFI’s Standards Program now includes 22 pellet producers totaling 35 manufacturing facilities. “The amount of pellets going through the PFI Standards Program has increased significantly over the last two years, up 50% a year,” according to Chris Wiberg, Biomass Engineering Services manager at Timber Products Inspection. “Now even some mass merchants are requiring compliance with a ‘quality component’ such as the PFI standards.”
Last year was an “okay” pellet sales year for American Wood Fibers, according to Stephen Faehner, CEO and president. “After coming off of several years where we maintained heavy inventories, the 2019 sales season was shorter with fewer heating degree days (HDD). That was coupled with the second or third warmest winter on record, and pellet consumption was down.”
Faehner sees more pellet mills diversifying their markets to include pellets used in grilling and used as animal bedding. “Our industry probably sees at least a hundred thousand tons of pellets now being produced for grilling,” he says. Half of American Fibers’ pellet sales go for heating while the other half is split between grilling and animal bedding.
“While there will be some corrections this year, the price of oil has fallen off the cliff, presenting a real challenge to the pellet market for heating fuel,” says Faehner. “Pellet grills are rapidly gaining ground, and the growth in sales of grilling pellets has really been a saving grace for our industry.” Faehner says the vast majority of grilling pellets are a blend of hardwoods, some for flavoring, called BBQ Blends.
Faehner also points out that the domestic market for hardwoods has fallen, causing a softening in the availability of raw materials for pellets and an increase in raw materials pricing. “That plus increases in freight costs of those raw materials and we see pressure on the market for pellet prices to go up 3% to 5% this season.”
The last two winters “took a long time to end,” says Bruce Lisle, president of Energex America, and that cleared out excess pellet inventories, especially in the East. “But now, at the end of the first quarter 2020, things have slowed to a whimper. We stock up on raw materials when available, and we continue building pellet inventory until demand hits.”
Lisle, too, points out that more pellet producers are shifting to grilling pellets, including Energex. He estimates that two million pellet grills now are in use, using an average of 200 lbs. of grilling pellets a year. “That totals 200,000 tons of pellets going for grilling, at least 10% of our industry’s sales and growing.”
As of Jan. 31, 2020, Energex was purchased by Lignetics as a separate division. At the February, 2020, International Biomass Conference in Nashville, Tennessee, Lisle was given the Excellence in Biomass Award.
|Rob Davis, Forest Energy Corp.|
Last year was a “good year” for pellet fuel sales for Forest Energy Corp., says Rob Davis, president, “but there was a scramble for pellets when one mill could not deliver. If we have a normal winter this year, we should see another good sales year. There is plenty of pellet production available in the West. If consumers and dealers alike commit earlier, there should be no concern about availability. With raw materials and labor costs both up, pricing should be up a little.”
Davis, too, recognizes the growth in grilling pellets, and Forest Energy also has entered that market. “The margins are slightly better for us, but a big advantage is that the sales season for grilling pellets is just the opposite of that for heating pellets, helping to level out our production and sales year.”
As usual, it should be an interesting and hard to forecast year for pellet stoves and pellet fuel.