Korea holds potential for Canadian pellet producers
September 25, 2012
By John Tenpenny
September 25, 2012, Seoul, Korea - While the potential of the South Korea market remains promising for Canadian pellet producers, in the near-term, development of the market will continue to be slow. This is according to WPAC executive director Gordon Murray, who recently travelled to the Asian country with a group of WPAC members to attend the 3rd Biopellets Asia conference.
The key stumbling block, says Murray is the insistence of Korean generating companies on open bidding for fixed quantities of pellets, as opposed to the international model of buyers and sellers negotiating longer-term bilateral agreements.
“This has worked well in Europe and there is too much risk for Canadians to contemplate moving to a bidding system,” said Murray, who presented at the conference.
“[The] Koreans will need to be more flexible and consider long-term contracts if they wish to do business. They will also have to consider the lead time required for potential producers to raise capital, plan and build new capacity.”
Seth Ginther of the U.S. Industrial Pellet Association (USIPA), who also presented, reiterated Murray’s conclusion, pointing out that the Koreans are seeking 5 million tonnes of wood pellets, but that the investments required to meet this demand won’t be made unless they are able to provide a low-risk trading environment. “Koreans will need to find a way to sign long-term deals if they are serious about obtaining pellets,” he said.
While there, Murray and the WPAC contingent also visited the recently completed Taeyoung Grain Terminal in Pyeongtak, two hours south of Seoul. The terminal currently accommodates 360,000 tonnes of silo storage and there is room for an additional 720,000 tonnes of storage.
“After viewing this terminal, considering the huge amount of capital expended, it is apparent that South Korea will not have any problems with unloading and storage infrastructure when the generating companies become serious about purchasing wood pellets,” said Murray.
Despite the challenges, Murray said that he is confident that the South Korean market will eventually bear fruit for Canadian pellet producers.
“South Korean is a leading industrial country with extraordinary engineering expertise and there is little doubt in my mind that when they become fully engaged in using pellets and co-firing, they will absolutely find a way to make the industry work to their advantage.”
Click here to read WPAC’s full conference report.
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