Sawmill residues in a shock: how the Canadian wood pellet industry weathered COVID-19

Introduction

Wood pellets are one of the destinations for sawmill residues, and in Canada they are an export business. According to the paper, production grew from a few hundred thousand tonnes a year in the early 2000s to more than 3.5 million tonnes at 49 mills in 2020, almost 90 percent of it exported, and pellets were about 1.5 percent of forest product exports in 2019. Sawmill residues make up most of the feedstock, and most producers hold long-term supply contracts. That close link to sawmills means that anything that disturbs lumber production also disturbs pellet feedstock.

A team led by Bruno Gagnon of the Economic Analysis Division of the Canadian Forest Service (Natural Resources Canada, Ottawa), with colleagues in Ottawa and at the Great Lakes Forestry Centre in Sault Ste. Marie, examined how the COVID-19 pandemic affected this supply chain. The paper appeared in the journal Energies on 27 April 2022, in a special issue on the effects of COVID-19 on renewable energy supply, demand and energy mix. It was funded through IEA Bioenergy Task 43 (2019 to 2021).

The study combines national statistics with two surveys of pellet producers, so it provides a view from inside the mills rather than only from market data. For a sawmill audience it is useful because it documents how residue-dependent users coped when sawmills closed or slowed, and what happened when lumber output rebounded.

Research methodology

Statistical analysis. The authors examined lumber production and prices, monthly GDP for forest subsectors, feedstock prices, European spot pellet prices, and exports. Reference periods were the 2017 to 2019 average for lumber and GDP, the 2019 average for feedstock, and December 2019 to February 2020 for pellet prices. All prices are nominal Canadian dollars.

Surveys. Thirty-four medium and large mills and three smaller mills were invited, representing 91 percent of national capacity. Survey 1 covered the first pandemic wave (March to September 2020) and ran from 23 October to 6 December 2020 with 20 questions. Survey 2 covered the second and third waves (October 2020 to April 2021) and ran from 14 May to 15 June 2021 with 22 questions. Thirty-one mills (83 percent) completed Survey 1 and 23 (74 percent) completed Survey 2.

Ethics and data. The paper states that ethics review was not required under the Canadian Tri-Council Policy Statement, and that statistical results are archived on the Open Science Framework.

Key findings

Market and economic data.

• Softwood lumber production stayed below its reference level, mostly because of declines in British Columbia that the authors say were unrelated to COVID-19.
• After a drop in April 2020, lumber production rebounded, and lumber prices reached record levels in August 2020.
• At the peak of the first wave about 60 sawmills, 15 pulp and paper mills and 20 panel mills were shut down or curtailed. By the end of 2020 only three sawmills and four pulp and paper mills remained closed.
• The pulp, paper and paperboard subsector was the only one that had not returned to pre-pandemic GDP the following year.
• Pellet prices declined slightly, plateaued in June 2020, recovered in autumn 2020 and winter 2021, but did not return to end-2019 levels. Feedstock prices stayed fairly constant through 2020 and into 2021, with a slight decrease in late 2020 and early 2021.
• Pellet exports in 2020 were 10 percent higher in volume than in 2019.

Survey results on feedstock.

• In Survey 1, 52 percent of mills saw no change in feedstock availability, 34 percent reported reduced availability (mostly in Quebec) and 13 percent reported increased availability. 55 percent kept their feedstock mix, 29 percent (mostly in British Columbia) increased the use of non-sawmill residues and about one sixth decreased it. For prices, 77 percent saw no change, 16 percent saw a moderate increase and 7 percent a decrease.
• In Survey 2, 65 percent reported increased availability and only one facility reported a decrease. Seventy percent reported little or no price change, 21 percent a moderate increase, and two respondents an increase above 20 percent.

Transport, labour and production.

• Transportation: in Survey 1, 55 percent reported no change, with most disruptions in British Columbia. In Survey 2, 78 percent reported no disruptions and 13 percent reported worsening issues.
• Labour: in Survey 1, 68 percent reported no shortages, with shortages mostly absent in Quebec, which had the most cases per capita and the strictest lockdowns. In Survey 2, 70 percent reported at least minor disruptions, largely linked to COVID-19 testing and isolation rules.
• Production: in Survey 1, four mills closed (two for one to four weeks, all in Quebec, British Columbia or the Atlantic region) and six reported slowdowns. In Survey 2, one mill closed, four increased production and three decreased it.
• Government support: in Survey 1, 28 percent used federal wage subsidies, two used federal loans or emergency financing, and 13 used provincial programmes. In Survey 2, 40 percent still relied on federal assistance, mostly wage subsidies.
• Adaptations in Survey 2: 75 percent added health and safety measures, 38 percent reorganised staffing and 6 percent invested in equipment to replace labour.

Overall conclusion of the authors. The pandemic's effect on pellet production was small and concentrated in the first few months, and no notable effect was found on pellet prices, feedstock prices or exports, although some mills had regional or local problems. Resilience factors they cite are feedstock flexibility (some mills had already invested in it), the quick lumber recovery, long-term contracts, essential-service designation and mill locations near transport routes. Labour shortages were the main vulnerability and became worse over time; the authors suggest training and retaining skilled workers. They note that later Delta and Omicron waves could cause short-term interruptions.

Practical applications for sawmills

This section is the portal's interpretation and not a claim of the authors.

• Sawmills and pellet plants share the same risk. Because pellet mills depend largely on sawmill residues, a sawmill curtailment is a feedstock event for the pellet plant. Mills selling residues under long-term contracts may find that the contracts protected both sides in 2020, which the paper lists as a resilience factor.
• Residue flexibility is valuable. Pellet producers that could broaden their feedstock mix (the survey shows some, mostly in British Columbia, increased non-sawmill residues) were better able to cope. A sawmill might read this as a sign that alternative residue buyers exist when one customer is disrupted, though the paper does not test it.
• Regional differences. Reduced feedstock availability was reported mostly in Quebec in the first wave, and transport disruptions mostly in British Columbia, so a mill's exposure is likely to depend on its province and transport route.
• Labour is the weak point. The survey result that labour disruption grew over time suggests that staffing plans, cross-training and isolation-rule planning matter as much as machine capacity.
• Residue value in a lumber boom. Record lumber prices in August 2020 and a quick rebound coincided with improving feedstock availability by Survey 2; the paper does not claim causation, but the mills' timing may be relevant for residue sales planning.

Limitations

The authors state several limitations:

• Pandemic effects could not always be separated from pre-existing factors such as the softwood lumber trade dispute with the United States, freight rail access problems and harvest restrictions, especially in British Columbia.
• Production data for competing residue users such as composite panel producers were unavailable.
• The study focused on supply and did not analyse pellet demand by end-use sector or geography.
• The study period was short and prices were nominal (not adjusted for inflation).
• European spot prices do not reflect long-term contract pricing, and U.S. export prices were not available.

The portal adds that it could not read the plotted values in Figures 3 to 6, the remaining rows of Table 1, Table 2 (respondents by region), the statistical appendix or the supplementary survey questionnaires, and that the last portion of the page text (about 4,400 characters, mostly the end of the reference list) was not read. Survey answers are self-reported by mills and the paper is from the pandemic period only.

Conclusions

For the Canadian wood pellet industry, the COVID-19 pandemic caused a modest and short-lived disturbance. Mill closures peaked in the first wave and fell quickly, lumber production and prices rebounded, feedstock and pellet prices stayed fairly stable and pellet exports in 2020 were 10 percent above 2019. Producers' main difficulties were regional feedstock shortages early on and increasing labour disruption later. The authors attribute the industry's resilience to feedstock flexibility, long-term contracts, essential-service status and location, and recommend attention to skilled-labour training and retention. For sawmill managers, the study is a documented case of how a residue-based industry reacted to a shock in the primary lumber industry.

Original research

• Authors: Bruno Gagnon, Heather MacDonald, Emily Hope, Margaret Jean Blair, Daniel W. McKenney
• Title: Impact of the COVID-19 Pandemic on Biomass Supply Chains: The Case of the Canadian Wood Pellet Industry
• Journal: Energies, Volume 15, Issue 9, Article 3179
• Year: 2022 (published 27 April 2022)
• DOI: 10.3390/en15093179
• Link: https://www.mdpi.com/1996-1073/15/9/3179
• Affiliations: Canadian Forest Service, Natural Resources Canada (Ottawa, and Great Lakes Forestry Centre, Sault Ste. Marie)
• Funding: IEA Bioenergy Task 43 (2019 to 2021)
• Licence: Open access; page metadata lists CC BY 3.0

This article is an independent summary prepared by the portal; the original paper should be consulted for full methods, tables and data.