Laura Tovey-Fall
Editor Argus Biomass Markets
Explore the growth of demand for residential and industrial pellets
How to predict the 2018 residential heating market? How is it different from 2017?
Temperatures in most parts of Europe in November 2017 were below the average level, causing demand to exceed expectations. At the same time, flooding in the Baltic region made it difficult to enter the forest, limiting the supply of raw materials for residential and industrial wood pellets and wood chips.
Demand was strong in the fourth quarter of 2017, coupled with tight supply, and prices have risen compared to the same period of the previous year. Despite the slightly above-average level in early 2018, shipments of bagged high-quality pellets from northern Italy to Italy in winter 2017 Spot prices averaged 220.36 euros/ton, compared with 194.50 euros/ton in the same period of the previous year. German, Austrian and British bagged pellets prices also rose year-on-year.
The residential pellet market depends on the weather. Future demand is always closely related to temperature. However, in some major consumers, wood pellet furnace installations have been added, which raises the demand baseline.
A possible consequence of the higher prices of EN + granules in winter 2017 compared to winter 2016 is that more residential pellet distributors may seek to secure supplies during the summer and store them on their own, rather than wait until the start of winter to confirm purchases. It may be possible to fill distribution channels earlier than before. But some people will notice that the recent mild winter and weak demand have led to an increase in inventories, which makes them reluctant to assume the risk of massive supply before next winter.
In your opinion, what are the key drivers of the boiler industry?
As a relatively new technology, biomass fuel boilers rely to a large extent on government incentives, such as the UK RHI program. But this means that when government policies change, or if a plan is so successful that it meets When budgeting, the investment will slow down. In other places, the technology is more mature and the residential wood pellets equipment device can be regarded as a symbol of fashion or status.
Another driving factor is the cost of competing fuels. Consumers hope that the up-front investment in new wood pellet fuel boilers will pay off in the long term, while the cost of competing fuels such as natural gas and heating oil will also affect the growth rate of boiler installations. Some countries' particles The association monitors these competitive fuels on a cost/kWh basis because it is difficult for consumers to understand the cost comparison of different fuels. The efficiency of the new wood pellet combustion furnace also helps to reduce consumer costs and quickly provide government support.
Do you think that the demand for high quality particles will continue to grow - in which parts of the world?
Due to the cold weather in Europe and North America, the demand for high-quality pellets in the winter of 2017 has skyrocketed. In most markets, the number of stoves and boiler installations continues to rise, increasing potential demand.
Areas with strong forestry on the one hand - such as New England in the United States, Canada, Germany and Eastern Europe - are worth noting.
On the other hand, countries like Italy or France are geographically located away from pipeline gas grids, which are often expensive and inconvenient, and are therefore ready to continue the development of the residential biomass heating market. The market has established a culture of wood heating, such as skiing Field, can well accept biomass heating.
In recent months, further development of the residential pellet market has intensified the competition between industry and semi-industry. Over the past year, the capacity of European CHP plants has increased, although these plants do not normally require EN+ grade particles. , But EN + particles can usually meet their specification requirements. Coupled with the production shortage in the Baltic region, restrictions on the supply of industrial wood pellets, the demand for high cogeneration capacity in countries and district heating networks for residential market pellets Increase. And this kind of plant usually has higher demand in cold weather, which is in line with the peak demand period of the residential industry. The residential market price is usually higher than industry. However, the supply of industrial and semi-industrial heating plants is very large. As for suppliers, these supplies can be sold to these industries instead of being distributed to small-scale consumers.
Alexander Afanasyev Managing Director
Dean Scanlan
Senior Trader, Peltrade
What do you think about the overall outlook of the Russian wood pellet market?
At present, Russia's domestic demand does not exceed 10-15 percentage points, and is seasonal. So most producers are targeting export customers.
In recent years, as new government regulations have forced timber producers to use their residues, we have seen many new production capacity coming soon. In the past two years, large timber producers in Siberia and northwestern Russia have started over 300,000 tons/year. New production capacity for the year, and more capacity is under development.
One of the main problems faced by Russia's grain industry is the low capacity utilization rate. Many factories are idle, and other factories have a production capacity of only 30-50%. However, due to the increase in grain prices and the supply of large quantities of cheap raw materials, we believe that manufacturers can increase Its utilization.
We believe that these factors in the next few years will make Russia one of the major players in the market and help respond to the growing demand for pellets.
Where do you think the largest export opportunities?
If we consider the EU's internal industrial plan, Scandinavia, the United Kingdom and the Netherlands provide opportunities, as a large number of conversions will continue and are expected to be fully operational from the second quarter.
Globally, as demand increases, South Korea and Japan will continue to provide opportunities.
With respect to the residential sector, we see opportunities in the UK, Continental Europe and Italy. The difficulties encountered by the particle production industry in the past two years and the subsequent closure of some factories have become a concern for consumers. Due to raw material challenges, prices have been squeezed, so from It is difficult to obtain supplies in the Baltic region.
What do you think is the main challenge of biomass trading?
In the past 18 months to two years we have witnessed some developments and challenges in the biomass market.
Due to the shortage of raw materials, I mentioned in the previous question the difficulty of obtaining materials from the Baltic countries. It is very important to build a strong, diverse and sustainable supply chain, especially when trading in industrial and residential markets.
The continued expansion of the residential market has introduced some new entrants, which is a positive development. But many of these companies have no track record and limited resources, which may lead to challenging transactions. Thoroughly 'know your customers' procedures are very It's time consuming and will run out of resources. But before the deal is concluded, it's crucial.
The next question is not a challenge, but it is also time-consuming - there is a need to closely monitor suppliers from the perspective of sustainability and certification. There are many different sustainable development plans, so make sure we match the right suppliers and consumers to achieve compliance. .
You mentioned the challenges experienced by the Baltic region during the current quarter - what are the different approaches that you will take or suggest what practices the customer will take to avoid similar situations in the future?
From our point of view, we have entered this season, but there have been some delays in the Baltic region. We were able to source materials from other locations, which alleviated most of the problems and meant that we could be able to influence the existing customer base. To a minimum. The UK's production problems increase the customer base. However, due to our existing commitments, we have not been able to take advantage of this advantage.
Not only do I have to advise our customers, but also all customers, of the most important suggestions to increase inventory to cope with entering the next heating season. The recent mild winter has caused companies to no longer pay attention to the abundant demand for winter reserves, but the market balance is good. When supply problems occur, price increases are unavoidable - but if consumers hold inventory, they can be minimized. If you can meet your requirements locally, this is great, but when there are production problems Because production, transportation, and delivery have lead time, alternative supplies cannot be found immediately.
Bill Strauss
President, FutureMetrics
By 2020, what do you think about the overall outlook of the wood pellet market?
Based on FutureMetrics research, I believe the market will grow substantially. The UK will soon see new industrial particle demand from Lynmouth power station and MGT Power power station by 2020. This will increase UK demand by about 2.7 million tons/year.
Although Unit 4 of the Drax Power Station is not expected to operate at full capacity after conversion to wood pellets, we expect that the Drax power station using wood pellets can be more stable when other units perform regular or irregular maintenance. Our estimates Yes, the UK will increase demand by about 500,000 tons/year. By 2020, total demand in the Netherlands will increase by another 2.5 million tons/year. As our Japan Biomass Outlook report shows, by the end of 2020, Japan's sawdust Demand for particulates may increase to approximately 1.8 million tons per year. Of these, approximately 900,000 tons per year will come from independent power producers (IPPs). The FutureMetrics study quantifies the demand for IPP. The rest comes from large utility companies. The modest rate of co-firing is less certain because the co-firing ratio may be higher or lower than the ratio used in the model. Considering that the use of particles in power generation depends on the market price of renewable energy certificates (REC), by 2020 South Korea The demand is not quite certain. If REC prices remain favorable, South Korea expects to consume about 6 million tons/year by 2020.
What is the United States' investment in increasing grain production?
In addition to publicly announced content, it is difficult to know the specific plans of major producers. We do see new companies seeking advice from FutureMetrics and have a strong interest in industrial particle production capabilities. Particles currently produced in western Canada that are transported to the United Kingdom via the Panama Canal A large part of this may eventually be shipped to Japan under long-term offtake agreements. This will create opportunities for East Coast producers to fill the demand gap. In my opinion, we will see competitive export projects in Maine. In the past few years, the pulp mill's demand for cork has exceeded 2.5 million tons/year.
How can companies establish sustainable business relationships with Asian markets and what are the opportunities?
By 2025, our Japan Biomass Outlook report predicts that independent power producers and major utility companies will consume more than 9 million tons/year of wood pellets. Japanese policy will require a good sustainability certificate, while Japan’s Independent power producers and major utility companies need long-term contracts to provide fuel delivery security and determine the cost of fuel during the transaction. Require production of state-owned strong rule of law, and believe that manufacturers can deliver the number of contracts at the agreed price, which is the transaction The key is that these necessary conditions are conducive to certain countries. Building on the basis of the rule of law, sustainability and the ability to provide consistent high-quality pellets, as well as trust in senior leaders of producers are crucial.
