The north America witnessed a very cold heating season in the last winter, affected by the polar vortex. Most of the dealers started to store the wood pellet at the begging of the heating season, as a result the final users could not purchase enough wood pellet for their own home heating use. So under this condition, the final price of the wood pellets in north America has risen a lot than the price in 2013 heating season.
Was the Asian wood pellet price also affected by the polar vortex last season? Of course, it is not. The main target market of the Asian wood pellets is the South Korean for industrial fuel to the power plants. The demand for the wood pellets in S.Korea has been increasing every year. Many Korean large industrial groups has been established their own wood pellet plant in Vietnam, Thailand, Indonesia and other Southeast Asian countries. The wood pellet trading companies are much more active on purchasing wood pellets in low prices and selling them in the higher price. In the 5th Biomass Pellets Trade & Power summit held in Soul in the end of last September, the spokesman expected the Korea, China and Japan would have larger pellet consumption market. After the summit, with the good expectation of the market and the coming winter in the Korea, the pellets trading companies, power plants, industrial boiler owners imported plenty of wood pellets just for storage. According to some statistics, Korea imported totally 1, 900, 000 tons of wood pellets last year, comparing 484, 668MT in 2013 and 122, 447 MT in 2012, which pushed the wood pellet price higher than 2013. We can see the Korean wood pellet imports grew by almost 300% year by year in the past years. However the actual pellet consumption in 2014 was around 1, 072, 000 MT, accordingly Korea has just imported 50, 000.00 MT wood pellets in February. So the price of the Southeast Asian wood pellets are affected obviously, and that will be the main reason of the price decreasing.
Manufacturing Cost Decreased
In the past 2014, the world saw the continues falling in crude oil price. There is a high correlation between crude oil prices and heating oil prices. Many final users turned to choose the easily accessible heating oil, instead of wood pellets.
Accordingly, the price of diesel oil, almost the same thing as heating oil made from the crude oil, has also deceased. The cheaper diesel oil means lower transportation cost of the raw material and wood pellets. But this factor plays a minor role in the reduction of wood pellet price, and even we have not heard from our clients the decreasing diesel oil price get passed along through the raw material supply chain. It all depends on who you’re doing business with.
Recovery of the wood pellet price?
The prices of all commodities are always subject to the conditions of supply and demand. Apparently, to the Asian pellet market, the import volume to Korea has fallen down than the expect in this season. Does the decrease of the demand will continue to the following three seasons? Before answer this question, we can see the following data firstly.
From the above two charts, even by the most conservative estimates, Korea will consume around 800,000 tons of pellets, monthly 66, 666 tons in this year. Based on consumption prospect in the following years, the demand for wood pellets in South Korea will keep for rapid increase. So we have reason to believe that the price of the wood pellet imported to Korean will return to the normal level soon. At the same time, the huge market demand will provide more opportunities to the wood pellet project investor in Southeast Asian countries.