Wood pellet and biomass fuels could see benefits from QE2
The Fed recently announced a second round of Quantitative Easing (QE2) that would pump an additional $600bn into the ailing U.S. economy. But while this move is intended to stimulate the economy, it has caused both a decline in the dollar and a rise in commodity prices. As the dollar continues to weaken, oil prices will likely rise further from their current level of $86 per bbl. OPEC has gone on record as saying that if the Fed did pull the trigger on QE2, they would seek an oil price of $100 per bbl. Oil prices at this level will cause consumers and business to seek alternatives to petroleum heating sources.
While the demand for wood pellets and biomass fuels has been sluggish over the past two heating seasons, the Fed’s move will likely stoke increased demand and mills need to prepare and position themselves for growth. Pellet demand has had some wild swings over the past several years. Sharp up ticks due to Hurricane Katrina and the meteoric petroleum price escalation in 2008 were countered by painful demand destruction when oil prices plummeted, leaving mills with excess capacity and tonnage. Fortunately, a unique set of circumstances are occurring that should restore some vitality to the industry.
In preparation for increased demand, pellet mills should look risk mitigation steps to prepare for what is possible ahead. Click here for a closer look at how wood pellet manufacturers could benefit from QE2.
William Gallagher Associates is a leading provider of insurance brokerage, risk management and employee benefits services to firms with complex risks and dynamic needs, within industries that include technology, life sciences, financial risks, health care, renewable energy & clean technology, and environmental services. WGA has offices in Boston, MA; New York, NY; Hartford, CT; Princeton, NJ; Columbia, MD; and Atlanta, GA.