FutureMetrics has developed a comprehensive model for estimating the cost of producing and transporting industrial wood pellets to foreign ports. An important driver of cost estimates is the cost of harvesting and transporting forest products and transporting pellets to marine terminals. Using models of oil prices and other components of the known or expected particle supply chain, this model can be used to estimate the cost of producing and delivering pellets in the future.
Historical price of pellet delivery
FutureMetrics estimates the historical delivery price (CIF) of wood pellets based on international trade data. Data on the value and quantity of imported pellets allows us to understand the price of the buyer's purchase of fuel. Since most international pellet trades are based on long-term contracts. These prices reflect competitive, long-term, market liquidation values.
Spot prices are affected by short-term supply and demand imbalances. If the market exceeds supply, prices will fall. If the market is in an excessive demand state, prices will rise. Long-term purchase agreement prices are based on the common sustainable value of particulate fuels. These prices are not subject to short-term supply and demand. The impact of imbalance.
FutureMetrics estimates CIF prices for several common destinations, including ARA and Japan. The estimated CIF price in the UK is shown in Figure 1.
Figure 1 Please note that the weighted average considers the market share of the exporting country. According to the latest data from the United States in June this year, the United States has a share of 58.4% in the UK market, 19.6% in Canada, 19.8% in the Balkan countries, and a minority in Russia.
Since trade data includes granules imported at spot prices, exporters such as Russia, which almost exclusively use spot trading and have low trade volumes, will show higher price volatility. The three-month moving average and trend line eliminate most of the Volatility. According to this analysis, the long-term average price delivered to the UK in the past few years was between $180 and $190 per metric ton.
model
The goal of the model is to replicate the expected delivery price of the particles and then predict future prices based on general macroeconomic parameters.
The analysis assumes that the market is not in a state of oversupply or oversupply. In the short run, supply and demand imbalances may affect spot prices. However, the intrinsic costs of producing and delivering pellets, including typical profit margins, will determine the market price of long-term supply contracts. .
The method develops separate sub-models for each major component of the particle cost, including the cost of wood delivered to the pellet plant, the cost of converting the pellet plant (excluding wood costs) plus profit, from the factory to the inland of the port Transportation and port storage and loading costs, as well as shipping costs.
The wood cost model starts with the cost of standing timber, then calculates equipment, labor and transportation, and harvesting and delivery. In this model, the distance from the four roads from the forest to the highway is entered. The use and cost of diesel is the total cost of delivering timber. A large part. If the pellet mill uses only the rest of the sawmill, the model explains the fact that the sawmill has absorbed most of the harvest and roundwood delivery costs.
The conversion cost is the cost of converting the incoming fiber into wood pellets. The difference is based on the historical value per metric ton of EBITDA (profit before interest, taxes, depreciation and amortization).
For inland transportation from the factory to the port, the cost per metric-ton (MT-kilometer) is calculated based on several inputs. Storage and loading costs are based on typical rates, including storage and ship-loading infrastructure.
In order to estimate transportation costs from the Argus Biomass Market Report, FutureMetrics uses particle transport rates for five different routes and two ship sizes over 200 weeks, based on parameters such as oil price, distance traveled, ship size, transport and loading and unloading time. Perform regression analysis. The regression output provides a set of reliable coefficients for estimating long-term transportation costs.
FutureMetrics adjusted the freight rate per metric ton according to the "sulfur cap on emissions from shipping" implemented by the International Maritime Organization on January 1, 2020. This adjustment It is based on the distance traveled, so the cost per metric ton increases with distance.
There are other inputs, including the general cost inflation rate.
FutureMetrics has estimated the potential variability of key inputs in the model and developed a probability distribution for these inputs. This allows for a series of Monte Carlo simulations. The simulation results are consistent with the price predictions shown in Figure 2, which uses several programs. Hypothesis. The input to each pellet plant will be different and unique.
Figure II Analysis result
The estimated CIF price per quarter is based on the probability distribution generated by the simulation. For example, the particles in the fourth quarter of 2018 are shipped from the southeastern United States to Immingham, UK, as shown in Figure 3, on a 45,000 metric ton vessel. Possible CIF price distribution in the simulated 10,000 interactions.
Figure III The transport distance of the pellet raw material has a great influence on the wood delivery cost of the pellet factory using logs or chips. 2. The cost of wood delivery is the most important factor affecting the total cost of pellet production. Green bars show producers' ability to buffer external cost changes with lower or higher operating cash flow margins. The blue bar chart shows how manufacturers can increase plant efficiency (eg, more consistent operations and production) Then they can lower the price, but keep their profits.
Unless the oil price does not follow the upward trajectory of the environmental impact assessment, and the general cost inflation rate is lower than the assumptions in this example, or the producer can increase the conversion cost or accept a lower EBITDA per ton. Excluding the above assumptions, by 2030, the delivery cost of industrial wood pellets is likely to exceed $250 per ton.
Author: FutureMetrics President William Strauss
