Wood Pellet Market Update: Sth. Korea

While the industrial  wood pellet market won’t be impacted by the volatility in oil prices, the  heating market will react as oil becomes cheaper than pellets around the world.  While homeowners won’t switch back to heating oil from pellets, cheap oil may  remove the incentive for those considering a pellet stove. Though trade into  the South Korean market does not provide long-term stability, trade into the  Japanese market is well established for Canadian producers. Japan has  introduced feed-in tariffs for renewable energy and the majority of its wood  pellet imports are already from B.C. There is significant potential for  increased co-firing as the country aims to reduce its dependence on coal. And  while South Korea is not focused on sustainability, Japan is increasingly  focused on sustainable pellet sources.

With recent changes to  legislations requiring FSC certification to start with, and then changing it to  its own Forestry Department certifying such quality, the Sth. Korean wood  pellet market is barely crawling.

Recent KOMIPO Bidding  Results as of 20th April 2015 were as follows.

15,000 Tons –  USD $128   DDP
15,000 Tons –  USD $128   DDP
10,000 Tons –  USD $132   DDP

Most bidders, who are  unsuccessful at their bids with the Power Gencos, are opting for the Industrial  Market and dumping their pellets. In order to Bid directly for the Power Genco  tenders, a company needs to have warehousing and be able to hold stock for  daily delivery. Avg. costs for such warehousing include $10 to $15 USD / per  ton for Trucking, $10 USD / per ton for warehousing and stock maintenance with  additional outlay for labor.

In the event these  companies fail to win the bid, have no choice but to dump such stock into the  Industrial Market.  The industrials consist of manufacturers who use  boilers to generate power, and whilst in 2014 the industrial market was approx.  400,000 Tons, it is expected to grow to 500,000 tons in 2015. Price has been  equally low due to pellet dumping.

Another trend to watch  is the falling Russian rubel, The Russian ruble extended its decline this week,  weakening another 1.9 % to 62.74 against the dollar, making it the world’s  worst-performing currency since Russia annexed Crimea in March. Analysts have  blamed the Ukraine conflict as well as falling oil prices for the country’s  worst currency disaster since 1998,

Russia being a cold  region, is able to supply good quality of Pine and has a geographical advantage  over Asia. However Russia’s harsh winters bring in logistical challenges for  the pellet trade.