Home > News > Content
Can Wood Pellet Supply Keep Up With Asian Needs?
- Aug 06, 2018 -


微信图片_20180915154013.jpg

Demand for biomass in Asia is growing rapidly. The question is, will there be enough biomass supply to meet it? Here I will look at the supply-demand balance for wood pellets in the region and the outlook for the coming years. 

Our estimates suggest that industrial particle demand in Asia could reach 4.9 million tons in 2018, up 49 percent from 2017. And South Korean and Japanese pellet demand is expected to continue to grow beyond that. We estimate it could rise to 13Mt in 2027. There are several factors that affect whether all requirements are realized, and perhaps most importantly, biological availability.

Data from our Q2 2018 Outlook for Wood Pellets report shows that globally there is 44Mt/y of wood pellet production capacity (heating and industrial) and almost 6Mt/y of that is industrial capacity in Asia, Australia and western Canada. For a more in-depth breakdown of national supply capacity and projects, pls refer to the Asia Pacific biomass report.

There is now enough supply to meet the needs of the region, but from our data it is clear that more investment is needed if supply is to meet demand. Japanese utilities are considering upstream investments to secure the supplies they need. Further more, the offer of 10 to 15-year offtake contracts from Japanese users, which have secured Feed-in-Tariff subsidy, will attract investors to back new supply capacity. So far, the trend has been that Japanese utilities have signed supply contracts with well-established industry players such as Engie, Pinnacle and Enviva (often through the Japanese trading houses) but perhaps we will see more newcomers to the industry as buyers widen their net.

The other question is whether the production capacity can be fast enough to ground the line? The South East Asia market has demonstrated that it can build new capacity rapidly. The most obvious example is Vietnam which grew its exports to South Korea 100 times over in the space of six years, sending over 1.5Mt to Korea in 2017. Most wood pellets sent for export are collected from several small mills, usually less than 20kt/y. Malaysia, Thailand and Indonesia have also expanded capacity quickly and consistently. Again, supply is dominated by a lot of small mills. Russia has also seen swift growth in its supply capacity by building pellet mills at existing sawmills, saving time and costs by utilising existing infrastructure and having easy access to raw materials. Russia mainly supplies Europe's heating market, but the recent expansion has been focused on Asia. Suppliers have emerged to support the south Korean spot market but few long-term contracts are available.

In contrast, the Canadian market has expanded to help meet growing Japanese demand. Japanese buyers have favoured the security of Canadian supply but the larger scale of plants in North America (often over 300kt/y), to take advantage of economies of scale, means progress is a bit slow. Normally significant funds must be raised which needs extensive due diligence and secure offtake contracts, plus the planning processes can take longer than in other parts of the world. Although western Canada has over 1Mt/y of projects in development, Japan will not be able to rely solely on Canada if it needs to find significant supply quickly.

The global industrial capacity at all stages of development exceeded 18.4 million tons. If all were to come online, industrial capacity would grow 84% from today but all of that must be developed by 2026 if forecast levels of demand are to be realised. However, the short-term situation for the industry will be more challenging. In 2019, demand and supply appear to be very well balanced, and according to our calculations, there could be a deficit in supply in 2020, meaning the planned projects must be developed quickly.